[House Hearing, 110 Congress]
[From the U.S. Government Printing Office]

                         PUBLIC INFRASTRUCTURE? 



                               before the


                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION


                            OCTOBER 10, 2007


                           Serial No. 110-193


Printed for the use of the Committee on Oversight and Government Reform

  Available via the World Wide Web: http://www.gpoaccess.gov/congress/

                         U.S. GOVERNMENT PRINTING OFFICE 

51-756 PDF                       WASHINGTON : 2009 

For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
Washington, DC 20402-0001 


                 HENRY A. WAXMAN, California, Chairman
TOM LANTOS, California               TOM DAVIS, Virginia
EDOLPHUS TOWNS, New York             DAN BURTON, Indiana
PAUL E. KANJORSKI, Pennsylvania      CHRISTOPHER SHAYS, Connecticut
CAROLYN B. MALONEY, New York         JOHN M. McHUGH, New York
ELIJAH E. CUMMINGS, Maryland         JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio             MARK E. SOUDER, Indiana
DANNY K. DAVIS, Illinois             TODD RUSSELL PLATTS, Pennsylvania
JOHN F. TIERNEY, Massachusetts       CHRIS CANNON, Utah
WM. LACY CLAY, Missouri              JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California          MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts      DARRELL E. ISSA, California
BRIAN HIGGINS, New York              KENNY MARCHANT, Texas
JOHN A. YARMUTH, Kentucky            LYNN A. WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa                PATRICK T. McHENRY, North Carolina
    Columbia                         BRIAN P. BILBRAY, California
BETTY McCOLLUM, Minnesota            BILL SALI, Idaho
JIM COOPER, Tennessee                JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire

                     Phil Schiliro, Chief of Staff
                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
                  David Marin, Minority Staff Director

                    Subcommittee on Domestic Policy

                   DENNIS J. KUCINICH, Ohio, Chairman
TOM LANTOS, California               DARRELL E. ISSA, California
ELIJAH E. CUMMINGS, Maryland         DAN BURTON, Indiana
DIANE E. WATSON, California          CHRISTOPHER SHAYS, Connecticut
CHRISTOPHER S. MURPHY, Connecticut   JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois             MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts       CHRIS CANNON, Utah
BRIAN HIGGINS, New York              BRIAN P. BILBRAY, California
                    Jaron R. Bourke, Staff Director

                            C O N T E N T S

Hearing held on October 10, 2007.................................     1
Statement of:
    Long, Judith Grant, assistant professor of urban planning, 
      Graduate School of Design, Harvard University; David P. 
      Hale, director, Aging Infrastructure Systems Center of 
      Excellence, University of Alabama; Bettina Damiani, 
      director, Good Jobs New York; and Steven Maguire, 
      Specialist in Public Finance, Congressional Research 
      Service....................................................    86
        Damiani, Bettina.........................................   109
        Hale, David P............................................    97
        Long, Judith Grant.......................................    86
        Maguire, Steven..........................................   125
    Solomon, Eric, Assistant Secretary for Tax Policy, Department 
      of Treasury; and Arthur J. Rolnick, senior vice president 
      and research director, Federal Reserve Bank of Minneapolis.    12
        Rolnick, Arthur J........................................    24
        Solomon, Eric............................................    12
Letters, statements, etc., submitted for the record by:
    Damiani, Bettina, director, Good Jobs New York, prepared 
      statement of...............................................   111
    Davis, Hon. Danny K., a Representative in Congress from the 
      State of Illinois, prepared statement of...................    75
    Hale, David P., director, Aging Infrastructure Systems Center 
      of Excellence, University of Alabama, prepared statement of    99
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio:
        Letter dated July 23, 2008...............................    51
        Prepared statement of....................................     7
    Long, Judith Grant, assistant professor of urban planning, 
      Graduate School of Design, Harvard University, prepared 
      statement of...............................................    90
    Maguire, Steven, Specialist in Public Finance, Congressional 
      Research Service, prepared statement of....................   127
    Rolnick, Arthur J., senior vice president and research 
      director, Federal Reserve Bank of Minneapolis, prepared 
      statement of...............................................    27
    Solomon, Eric, Assistant Secretary for Tax Policy, Department 
      of Treasury, prepared statement of.........................    15
    Watson, Hon. Diane E., a Representative in Congress from the 
      State of California, prepared statement of.................   142

                         PUBLIC INFRASTRUCTURE?


                      WEDNESDAY, OCTOBER 10, 2007

                  House of Representatives,
                   Subcommittee on Domestic Policy,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m. in room 
2154, Rayburn House Office Building, Hon. Dennis J. Kucinich 
(chairman of the subcommittee) presiding.
    Present: Representatives Kucinich, Cummings, Davis of 
Illinois, Tierney, and Issa.
    Staff present: Jaron R. Bourke, staff director; Charles 
Honig, counsel; Jean Gosa, clerk; Chris Mertens, intern; 
Natalie Laber, press secretary, Office of Congressman Dennis J. 
Kucinich; Leneal Scott, information systems manager; Alex 
Cooper, minority professional staff member; and Larry Brady, 
minority senior investigator and policy advisor.
    Mr. Kucinich. The committee will come to order.
    I have been informed by the minority staff that Mr. Issa 
will be here, but he has asked if we could begin in his 
absence. He has assented to that.
    We have also been asked by Mr. Solomon if we could expedite 
his testimony, as he has other pressing time commitments, and 
we shall do that, as well.
    The committee will come to order. The Subcommittee on 
Domestic Policy of the Committee on Oversight and Government 
Reform is in order. Today's hearing will examine whether 
professional sports stadiums divert public funds from critical 
public infrastructure.
    Without objection, the Chair and the ranking minority 
member--who, again, has asked us to proceed in his absence, but 
he is on his way--will have 5 minutes to make opening 
statements, followed by any opening statements, not to exceed 3 
minutes, by any other Member who seeks recognition.
    Without objection, Members and witnesses may have 5 
legislative days to submit a written statement or extraneous 
materials for the record.
    The Department of Transportation says there are 12,176 
structurally deficient urban bridges in America today. I can 
tell you, coming from Cleveland, OH, we have quite a few in our 
city, as well. One of those bridges collapsed in Minneapolis, 
MN, last August killing 13 people. Our bridges, roads, schools, 
and water purification systems are all aging. Many are in need 
of repair and replacement. Assessing the whole picture, the 
American Society of Civil Engineers has concluded America's 
infrastructure is ``crumbling.''
    For those who are in the audience, every county engineer in 
America has to keep a list of the conditions of critical 
infrastructure and particular bridges and to grade those 
bridges as to their structural stability. I have seen lists in 
quite a few communities, and I can tell you there is a great 
concern across America about the structural stability of a lot 
of our infrastructure.
    But even though we have our infrastructure crumbling, the 
Minnesota Twins got public funding approved for a new stadium 
just a year before the I-35 West bridge collapsed. The Yankees 
are getting a new stadium valued at over $1 billion, even 
though New York City, alone, has 50 structural deficient 
bridges. In Cleveland, local and State government gave the 
Browns and the Indians and the Cavaliers new stadiums, yet we 
have five structurally deficient bridges in the county.
    As an aside, while we are, in Cleveland, very proud of our 
Cleveland Indians and want to see them go to the World Series, 
we also know that in the city of Cleveland there was a great 
debate about the funding for these stadiums and that, while the 
public provides the funds, the people who are living in the 
city aren't getting any free tickets to these games. They are 
paying, if they can get a ticket, for the ticket. They paid for 
the stadium. They don't get any of the profits.
    Now, this story of crumbling infrastructure around the 
Nation is pretty much the same everywhere, in light of publicly 
funded and financed sports stadiums. Baltimore has two publicly 
financed sports stadiums, while the county has eight 
structurally deficient bridges. Philadelphia has three publicly 
financed sports stadiums, while the county has 42 structurally 
deficient bridges. Chicago has two publicly financed sports 
stadiums while it has a whopping 82 structurally deficient 
    Keep in mind this isn't about whether we love our teams in 
our towns; we all have a great and passionate love for our home 
team. But this is a separate issue as to where do we put our 
infrastructure money. Does public funding of professional 
sports stadiums divert funds and attention from infrastructure 
    Let's look at the case in Minnesota. Since taking office in 
2003, Minnesota Governor Tim Pawlenty consistently opposed 
increases to the gasoline tax, even vetoing them at least once. 
The gasoline tax increase would have funded bridge and road 
repair. But he signed a bill allowing Hennepin County to raise 
its county sales tax without going to the voters, as county law 
mandates. The county tax increase was dedicated to paying the 
debt service on the bonds for a new Twins Stadium.
    The Minnesota experience is not unique. State and local 
officials continue to invest public funds in professional 
sports stadiums, in spite of the persistence of crumbling 
bridges, roads, and schools. Federal taxpayers continue to 
subsidize these give-aways by financing new professional sports 
stadiums with tax-exempt bonds. If there was ever a topic 
meriting oversight and government reform, we have one here.
    Repairing and maintaining America's roads and bridges is 
one of the key Government responsibilities, and it is a 
significant burden on State and local taxpayers. According to 
the Congressional Budget Office, 63 percent of State and local 
infrastructure spending is devoted to operations and 
maintenance. That amounted to $151 billion in 2001. Those funds 
are diverted from gasoline taxes and general revenues.
    Most of the structurally deficient bridges are owned by 
States and localities. According to the U.S. Department of 
Transportation, 24,061 of the Nation's 77,793 structurally 
deficient bridges are owned by States, and 55,390 of them are 
owned by local governments. Obviously, State and local 
governments are having a hard time keeping up with the rising 
cost of bridge maintenance and structural maintenance.
    Well, now comes along the professional sports team owners, 
and to that problem they add another: they want a new stadium. 
And not just a new stadium, but they ask for parking 
facilities, a dedicated ramp from the highway, new stadium to 
have more luxury boxes, even at the expense of fan seating. 
They want to finance the tax-exempt bonds that the city and 
State would guarantee because the costs of construction are 
lower with reduced interest rates on tax-exempt bonds.
    So what happens? Cities and States compete with one another 
to offer the larger package of publicly financed incentives. 
According to one of our witnesses here today, Professor Judith 
Grant Long of Harvard, in both absolute and relative terms the 
public spends a lot on professional sports stadiums. In her 
written testimony, Professional Long finds that the public will 
have spent $33 billion on professional sports stadiums by the 
time the last facility currently scheduled for construction is 
    Taxpayers also assume a large share of costs for new 
professional sports facilities. Among new professional sports 
facilities built since 1990, the average public share of cost 
is estimated to be between 55 and 85 percent.
    Clearly, having a professional sports team in one's city is 
an expensive item, but it is also not a very good investment. 
There are few things economists agree on, but the profession is 
unanimous on this point. At our last hearing on the topic, 
sports economist Dr. Brad Humphreys of the University of 
Illinois stated, ``I have not found any evidence whatsoever 
suggesting that professional sports stadiums create jobs, raise 
income, or raise local tax revenues.'' Of course, there is a 
great feeling of pride in having a team, but we also have to 
recognize that doesn't necessarily create jobs or raise 
revenues or grow the economy.
    One of the things that I said back in Cleveland years ago 
when the debate was going on over the building of sports 
facilities is that, instead of building money for a new 
facility, just issue bonds to buy the team. That way you don't 
worry about a team leaving, and that way the public owns the 
team. Then if the team goes to the World Series, then the 
public shares in that revenue. Then you drive down the price of 
tickets. There are all kinds of ways you can do this.
    But instead what has happened is that the taxpayers get the 
bill for the stadium. Even worse than that, you have 
corporations that buy naming rights to make it appear as though 
they built the stadium. So what you get is the public gets the 
bills and the owners of the sports team get these huge profits.
    It is indisputably clear that public subsidies enrich the 
private owners of the teams. Look at the Detroit Tigers and 
Detroit Lions. The value of the Tigers rose from $83 million in 
1995 to $290 million in 2001, the year after the team moved 
into their new stadium. The Lions increased in value after 
moving into a new stadium even more dramatically from $150 
million in 1996 to $839 million in 2006.
    Economic benefit to the teams' owners was certainly the 
case for President Bush, who in 1989 spent about $600,000 to 
buy a small stake in the Texas Rangers baseball team. During 
his ownership, Mr. Bush and his co-investors were able to get 
voters to approve a sales tax increase to pay more than two-
thirds of the cost of a new $191 million stadium for the 
Rangers, as well as the surrounding development.
    Mr. Bush and his partners also received a loan from the 
public authority charged with financing the stadium to cover 
their private share of construction costs. By 1994, the 
Rangers, in their new publicly financed stadium, were sold for 
$250 million, a threefold increase in value in nearly 5 years, 
and one that was largely attributable to the new taxpayer-
subsidized stadium. Mr. Bush personally came away with a profit 
of $14.9 million. In this case, the tax-exempt financing 
indisputably benefited the owners of the Texas Rangers.
    How is it that critical infrastructure needs go unfunded 
while luxuries like professional sports stadiums are subsidized 
    The first part of the question has been the subject of 
considerable discussion dating back to the 1980's. For 
instance, in an article entitled, ``Holding Government 
Officials Accountable for Infrastructure Maintenance,'' Ned 
Regan, the long-time Republican Comptroller of the State of New 
York, wrote: ``Maintenance budgets are routinely starved by 
government at all levels. Neglect, not age, is the root cause 
of most infrastructure failures in this country. Simply put, 
deferring maintenance is a handy expedient for public officials 
faced with problems in balancing their budgets.''
    Now, Regan identifies two problems that account for that. 
The first is that politicians like to get credit for what they 
do, and the credit is more noteworthy when you can cut the 
ribbon at the opening of a new facility.
    He writes: ``Maintenance activities, while undeniably in 
the public interest, tend to be regarded as having low 
visibility and correspondingly low political payoff. A 
television news editor, for example, is not likely to be 
interested in bridge maintenance. Moreover, the consequences of 
the failure to scrape and paint a bridge in a particular year 
are not evident at the time. People do not think that the 
bridge might collapse in the next year.''
    The second problem is the lack of systematic funding, a 
lack of a democratic and transparent process in which 
infrastructure needs are evaluated. There is no process whereby 
decisionmakers know, based on sound evidence and rigorous 
analysis, what maintenance requirements are and what the costs 
of neglecting maintenance are likely to be. Such information 
could then be considered in light of available resources when 
determining maintenance budgets. That is accompanied by a lack 
of public information. ``As long as the public remains 
uninformed about the extent to which public assets are not 
being safeguarded, public officials will be encouraged to 
continue the prevailing pattern of neglect.''
    This is the second time this subcommittee has examined the 
merits and costs of public financing of professional sports 
stadiums. At our March 29, 2007, hearing we examined the 
effectiveness of Congress' last attempt to curb the use of tax-
exempt financing for construction of professional sports 
stadiums. In 1986, Congress passed the Tax Reform Act, which 
changed the rules on tax-exempt financing. Basically, the act 
excluded professional sports stadiums from a list of exceptions 
to taxable private activity bonds. That should have closed the 
matter, but sports stadiums continue to be built with more and 
more public money, according to Professor Long.
    When we discussed this specific case in detail with the 
Chief Counsel of the Internal Revenue Service, who is in charge 
of enforcing the regulations on tax-exempt financing, we 
discovered that a significant loophole was being exploited that 
permitted professional sports teams the benefit of tax-exempt 
financing for sports stadiums and their exclusive, private use. 
In that hearing we questioned the Chief Counsel about a private 
letter ruling that enabled the New York Yankees to benefit from 
a tax-exempt financing of the new Yankees Stadium and a 
construction cost saving of $189.9 million, according to New 
York City's Independent Budget Office.
    Obviously, the 1986 act did not have the intended effect of 
curbing public financing of sports stadiums' construction. As 
Dennis Zimmerman testified at our previous hearing, ``Since 
local taxpayers were expected to be reluctant to use general 
obligation debt to pay for stadium debt service, stadium bonds 
would wither. Unfortunately, the expectation was overwhelmed by 
the combination of monopoly power to professional sports 
leagues that maintains excess demand for franchises and stadium 
proponents' use of pseudo-economic studies showing that 
stadiums pay for themselves.''
    Clearly, there is more work to be done. Our bridges should 
be safe. Our children's school buildings should be safe and 
conducive to learning. And the owners of professional sports 
teams should pay for their own stadiums. To the extent that the 
use of public money to finance professional sports stadiums 
diverts funds and attention away from maintaining critical 
public infrastructure, my hope is that these hearings will 
contribute to fixing the problem, focusing a discussion on the 
kind of investment that goes into these facilities, asking 
about the specific economic benefits to the community, 
especially those that were promised at the beginning of the 
construction of many of those projects, and asking the question 
about how do we meet the diverse needs in the community, 
particularly where there is aging infrastructure.
    Middle America, there are bridges that are falling, there 
are roads that are in ill repair, there are schools that are 
crumbling; yet, we see this tremendous push being made to try 
to put hundreds of billions of dollars into sports stadiums.
    While we love our local teams and we have a great deal of 
commitment and pride in our local teams, we also know that the 
public infrastructure that is needed in order to provide jobs, 
to increase business activity in a community, has to be 
maintained, and that infrastructure is crumbling. The money 
generally comes from local and State governments, the same 
place where a lot of these funds to build these facilities are 
coming from.
    So with that we are going to go to the first panel.
    [The prepared statement of Hon. Dennis J. Kucinich 


    Mr. Kucinich. Again, for those who just joined us, Mr. Issa 
had asked me to proceed with this hearing in the anticipation 
that he will be joining us. I am going to proceed.
    I am pleased to have a distinguished panel of witnesses 
here to address whether professional sports stadiums divert 
public funds from critical public infrastructure. On today's 
first panel the subcommittee is pleased to have the following 
witnesses. First of all, Mr. Eric Solomon. Mr. Solomon was 
sworn in as Assistant Secretary for Tax Policy, Department of 
Treasury on December 12, 2006. He joined Treasury's Office of 
Tax Policy in October 1999 as Senior Advisor for Policy. He 
subsequently served as Deputy Assistant Secretary, Tax Policy, 
and Deputy Assistant Secretary, Regulatory Affairs, prior to 
his December 2006 appointment as Assistant Secretary for Tax 
    Mr. Solomon previously served at the Internal Revenue 
Service from 1991 to 1996 as Assistant Chief Counsel, heading 
the IRS legal division with responsibility for all corporate 
tax issues, and as Deputy Associate, Chief Counsel, Domestic 
    Mr. Solomon was a partner at Ernst and Young, LLP, where he 
was a member of the Mergers and Acquisitions Group of the 
National Tax Department in Washington, DC. He received his A.B. 
from Princeton, his J.D. from University of Virginia, his LLM 
in taxation from New York University. Before joining Treasury 
he was a member of the Executive Committee of the Tax Section 
of the New York State Bar Association, adjunct professor at 
Georgetown, teaches a course in corporate taxation.
    In 2006 he received the Distinguished Executive 
Presidential Rank Award in recognition of his exceptional 
career accomplishments at Treasury.
    Mr. Arthur Rolnick is a senior vice president and director 
of research at the Federal Reserve Bank of Minneapolis, an 
associate economist with the Federal Open Market Committee. As 
a top official of the Federal Reserve Bank, Mr. Rolnick 
regularly attends meetings of the Federal Open Market 
Committee, the Federal Reserve's principal body responsible for 
establishing national money and credit policies.
    Mr. Rolnick's essays on such public policy issues as 
Congress Should End the Economic War Amongst States, a plan to 
address the ``too big to fail'' problem, and the economics of 
early childhood development have gained national attention.
    His research interests include banking and financial 
economics, monetary policy, monetary history, the economics of 
federalism, and the economics of education. He has been a 
visiting professor of economics at Boston College, the 
University of Chicago, the University of Minnesota. Most 
recently he was an Adjunct Professor of Economics at the MBA 
program at Lingnan College in Guangzho, China and the 
University of Minnesota's Carlson School of Management. He is 
Past President of the Minnesota Economic Association, serves on 
several nonprofit boards, including Minnesota Council on 
Economic Education, Greater Twin Cities United Way, Citizen's 
League of Minnesota, and Ready 4K, an advocacy organization for 
early childhood development. He is on the Minneapolis Star 
Tribune's Board of Economists, a member of the Minnesota 
Council of Economic Advisors.
    He has had numerous awards for his work in early childhood 
development, including being named 2005 Minnesotan of the year 
by Minnesota Monthly Magazine.
    A native of Michigan, Mr. Rolnick holds a bachelor's degree 
in mathematics and a master's degree in economics from Wayne 
State University in Detroit. He has a doctorate in economics 
from the University of Minnesota.
    I read at length for those who are in attendance the 
qualifications of these two witnesses because you need to 
understand that the individuals about to testify are people 
that have extensive backgrounds in the issues that are before 
this subcommittee.
    I want to thank them for being here.
    Gentlemen, it is the policy of the Committee on Oversight 
and Government Reform to swear in all witnesses before they 
testify. I would ask that you rise and raise your right hands.
    [Witnesses sworn.]
    Mr. Kucinich. Thank you, gentlemen.
    Let the record show that the witnesses answered in the 
    I would ask that the witnesses now give a brief summary of 
their testimony. Keep your summary under 5 minutes in duration. 
Your complete written statement will be included in the hearing 
    Mr. Solomon, you will be our first witness, and I ask you 
to proceed.


                   STATEMENT OF ERIC SOLOMON

    Mr. Solomon. Mr. Chairman, thank you for the opportunity to 
appear before you today to discuss important Federal tax issues 
regarding tax-exempt bond financing.
    Tax-exempt bonds play an important role as a source of 
lower-cost financing for State and local governments. The 
Federal Government provides a significant Federal subsidy to 
tax-exempt bonds through the Federal income tax exemption for 
interest paid on these bonds, which enables State and local 
governments to finance public infrastructure projects and other 
public purpose activities at lower cost.
    The cost to the Federal Government of tax-exempt bonds is 
significant and growing. Unlike direct appropriations, this 
Federal subsidy is not tracked in the appropriations process. 
Tax-exempt bonds also are less efficient than direct 
appropriations because of pricing inefficiencies. The steady 
growth in the tax-exempt bond volume reflects the importance of 
this incentive for public infrastructure. At the same time, it 
is appropriate to ensure that the Federal subsidy for tax-
exempt bonds is properly targeted and is justified in light of 
its significant Federal cost.
    I will touch briefly on the legal framework for tax-exempt 
bonds. I then will highlight certain tax policy considerations 
regarding tax-exempt bonds in general and stadium financing in 
    The statute provides for two basic types of tax-exempt 
bonds: governmental bonds and private activity bonds. The 
current legal framework under the code treats bonds as 
governmental bonds if they are either used primarily for State 
or local governmental use or payable primarily from 
governmental bonds. Thus, the code generally treats bonds as 
private activity bonds only if they exceed both a 10 percent 
private business use limit and a 10 percent private payments 
    Tax-exempt governmental bonds may finance a wide variety of 
projects. Tax-exempt private activity bonds may only finance 
specific types of projects authorized by the code. Most private 
activity bonds are subject to an annual State bond volume cap. 
State and local governments often finance traditional public 
infrastructure projects with governmental bonds based on 
governmental use of those projects. By comparison, they finance 
stadiums used for private business use with governmental bonds 
based on governmental payments for the bonds, including general 
    Next I want to highlight certain tax policy considerations. 
Here it is important to keep in mind that the tax-exempt bond 
provisions under the existing statutory framework implement a 
key policy to give State and local governments needed 
flexibility and discretion to finance a range of projects with 
governmental bonds and public/private partnerships when they 
determine that the projects are important enough to warrant 
commitment of State or local governmental funds.
    At the same time, it is important to properly target and 
justify the Federal subsidy for tax-exempt bonds. The tax 
policy justification is strongest for traditional public 
infrastructure projects with clear public purposes. The 
justification is weaker for projects that lack a clear public 
purpose or that provide significant benefits to private 
    Some have asserted that the availability of governmental 
bonds for stadiums with significant private business use 
represents a structural weakness in the targeting of this 
important Federal subsidy. Several options could be considered 
to target the tax-exempt bond subsidy further to limit the use 
of governmental bonds for stadium financing.
    One option that Congress could consider would be to repeal 
the private payments in the private activity bond definition 
for stadiums only. This possible change would prevent use of 
governmental bonds to finance stadiums when private business 
use exceeds 10 percent.
    In its January 2005 tax reform options, the Joint Committee 
on Taxation included this option to repeal the private payments 
limit for stadium financing.
    A second option that Congress could consider would be to 
allow tax-exempt private activity bonds to finance stadiums 
under the bond volume cap. This option would require stadiums 
to compete with other projects for bond volume cap. This option 
could be combined with the first option to allow governmental 
bonds for governmentally used stadiums and private activity 
bonds for privately used stadiums.
    A third option that Congress can consider would be to ban 
tax-exempt bond financing for professional sports stadiums 
altogether. Prior legislative proposals have suggested this 
option, but these proposals have never been enacted into law.
    A final, broader possible option that Congress could 
consider would be to repeal the private payments limit in the 
private activity bond definition altogether. This possible 
change would eliminate use of governmental bonds for all 
projects when private business use exceeds 10 percent. This 
would affect stadiums and all other types of projects with 
significant private business use that otherwise could be 
financed with governmental bonds based on governmental 
payments. The Joint Committee on Taxation's January 2005 
proposals also discuss this broader option.
    At this time the administration does not take a position on 
any specific policy option on possible legislative changes. 
This topic raises difficult questions which will require the 
balancing of interests of State and local governments in having 
flexibility to determine what projects are appropriate and the 
Federal interest in effectively targeting this Federal subsidy.
    In conclusion, the administration would be pleased to work 
with the Congress in reviewing possible options to try to 
improve the effectiveness of this important Federal subsidy for 
tax-exempt bonds.
    Thank you, Mr. Chairman, for the opportunity to appear 
before you today. I would be glad to answer any questions.
    [The prepared statement of Mr. Solomon follows:]

    Mr. Kucinich. Thank you, Mr. Solomon.
    Mr. Rolnick.


    Mr. Rolnick. Thank you, Mr. Chairman and members of the 
subcommittee, for having me here today.
    Before I begin, let me say the views that I am about to 
express are my own and not necessarily those of the Federal 
Reserve Bank of Minneapolis or the Federal Reserve system.
    There is likely no major metropolitan area in this country 
that has not been held hostage at some point by the owner of a 
sports franchise who threatened to move his team elsewhere if 
he did not receive a new taxpayer-funded sports complex. 
Indeed, such economic blackmail even affects many of our 
smaller communities, as minor league sports teams have also 
learned to play this rent-seeking game.
    Being from Minnesota, I can personally attest to this rent-
seeking game as the Minnesota Twins, after a 10-year campaign, 
finally persuaded a previously reluctant State legislature to 
hand over about $400 million in public financing for a new 
stadium that is now under construction. Not to be outdone, the 
Minnesota Vikings are currently pressing the legislature for 
their own share of public largesse, and who can blame them. As 
long as governments are willing to hand over limited public 
resources, these teams would be foolish not to accept them.
    But make no mistake: it is not just sports teams that 
demand public money from cities and States. The State and local 
funds spent competing for sports franchises, though 
conspicuous, probably represent only a fraction of the billions 
of dollars spent on more than 8,000 State and local economic 
development agencies competing to retain and attract businesses 
through the use of preferential--and let me underline 
preferential--taxes and subsidies. Businesses know they can get 
public funding by threatening to move, forcing State and local 
governments into competition for business that has become 
economic warfare.
    To be clear, from a national perspective, the so-called 
economic bidding war among States does not create jobs. It only 
moves them around from one city to another, from one State to 
another. This is what economists call a zero sum game. It is a 
zero public return. Indeed, it may be a negative sum game.
    While States spend billions of dollars to retain and 
attract businesses, State and local governments struggle to 
provide such public goods as schools and libraries, public 
health and safety, and the roads, bridges, and parks that are 
critical to the success of any community. Indeed, we in 
Minnesota have special cause to speak to the importance of 
adequate funding for infrastructure following the tragic 
collapse of the I-35 W bridges over the Mississippi River.
    Something is wrong with this picture, and I am going to 
argue only Congress can fix it.
    I am here today largely to discuss the wasteful nature of 
this bidding war among States and to offer a recommendation to 
end this inefficient use of scarce public resources. However, 
in addition, I will briefly offer a proposal for the best use 
of public resources for economic development--that is early 
childhood development. I will argue that you should think of 
early childhood development as economic development with an 
extraordinary public return. I offer more description in my 
full testimony that has been submitted to the subcommittee.
    To begin, it is important to recognize that not all 
competition among State and local governments is bad. 
Competition for businesses through general tax and spending 
policies--that is, policies that are non-preferential that 
apply to all business--is beneficial. So, for example, we want 
Minnesota and Wisconsin competing to see which State can offer 
the best public education at the lowest cost. Such competition 
helps State and local governments determine the amount and 
quality of public goods for which their citizens are willing to 
pay and to provide these goods efficiently.
    But from a national perspective, when competition takes the 
form of preferential treatment for specific businesses, it 
creates, at best, a zero sum game. It is more likely to create 
a competitive game, in fact, that mis-allocates private 
resources and causes State and local governments to provide too 
few public goods.
    When a business is enticed by being offered preferential 
favors to relocate, there is no net gain to the overall 
economy. Jobs are simply moved from one location to another. 
Furthermore, on closer examination, there will be a loss. There 
will be fewer public goods produced in the overall economy 
because in the aggregate States will have less revenue to spend 
on public goods. In addition to the loss of public goods, the 
overall economy becomes less efficient because output will be 
lost as some businesses are enticed to move from their best 
    Moreover, it is assumed in my remarks so far that States 
have the information to understand the businesses they are 
courting. In practice, States have much less than perfect 
information, assuming States are so handicapped they will 
finance some businesses that private markets deem too risk to 
    How can this economic bidding war among State and local 
governments be brought to an end? The States won't, on their 
own, stop using subsidies and preferential taxes to attract and 
retain businesses. As long as a single State engages in this 
practice, others will feel compelled to compete. Only Congress, 
under the Commerce Clause of the Constitution, has the power to 
enact legislation to prohibit States from using subsidies and 
preferential taxes to compete with one another for businesses, 
and only Congress can enforce such a prohibition.
    There is a congressional precedent for such action. In 
1999, then-Representative David Minge of Minnesota introduced 
the Distorting Subsidies Limitation Act. This bill would end 
these harmful subsidies by, in effect, taxing them out of 
existence. Under the bill, subsidies provided by a State or 
local government to a particular business that is a 
preferential subsidy to locate or to remain within the business 
jurisdiction would be taxed at such a level so as to render the 
subsidy moot. For example, if the subsidy was taxed at 100 
percent, they would be rendered ineffective. State and local 
governments would thus lay down their arms in this escalating 
economic war and the resulting truce would benefit all society.
    If the subsidy war is the wrong way to promote economic 
development, what is the right way? The tried and true 
investments that have served economies well, especially since 
the second half of the 20th century, are public investments in 
human capital. To that end, it is also time for congressional 
action on proposals to increase funding for at-risk kids for 
early childhood education. These proposals have gained national 
attention in recent years because of the overwhelming research 
by neuroscientists on brain development and by economists on 
economic returns to high-quality early education programs. We 
have estimated the annual rate of return on a high-quality 
early education program, inflation adjusted, to be as high as 
18 percent.
    In summary, the evidence is clear: compared with billions 
of dollars in public subsidies to professional sports teams and 
other private businesses, investment in our infrastructure, 
both physical and human, especially investment in early 
childhood development for at-risk children, is real economic 
development, and it is economic development with a very high 
public return.
    Thank you for this opportunity to testify on this important 
policy issue. I look forward to answering questions.
    [The prepared statement of Mr. Rolnick follows:]

    Mr. Kucinich. Thank you very much for your testimony, Mr. 
Rolnick and Mr. Solomon.
    Before we go to questions, I want to acknowledge the 
presence of Mr. Davis and Mr. Tierney and Mr. Cummings. Thanks 
to all of you for being here.
    If the gentlemen have an opening statement, we will be glad 
to include it in the record.
    At this point we are going to go to questions. I will begin 
with Mr. Solomon.
    I think that I should be relieved to learn from the written 
testimony that ``the tax policy justification for a Federal 
subsidy for tax-exempt bonds is weaker when State or local 
governments use governmental bonds to finance activities beyond 
traditional governmental functions, such as a provision of 
stadiums, in which the public purpose is more attenuated and 
private businesses receive the benefits of the subsidy.'' That 
is a direct quote.
    I think that means that you don't think that building 
professional sports stadiums with public money is a good idea 
when the traditional government function of making sure bridges 
are safe isn't being fulfilled. Is that a fair rendering of 
your position?
    Mr. Solomon. Mr. Chairman, you raise very important policy 
concerns, because it is necessary to ensure that the tax-exempt 
bond program is properly targeted so that it is most 
effectively used and so that the Federal subsidy is justified 
in light of the revenue costs and the other costs imposed.
    What Congress has done, what the Internal Revenue Code does 
is it strikes a balance between two different interests. One 
interest is that it wants to target the use of tax-exempt bonds 
to critical projects, critical governmental projects, but at 
the same time, the statutory structure of the Internal Revenue 
Code does provide currently flexibility and discretion for 
State and local governments to finance projects that do have 
private use if the State or local government finds the project 
sufficiently important to warrant the commitment of State and 
local government funds to carry out those projects.
    So the current structure of the Internal Revenue Code does 
permit, in situations where there is some private use, it 
permits State and local governments to decide to go forward 
with tax-exempt bonds when there is a commitment to use 
governmental funds.
    Mr. Kucinich. Right. I understand that. Nevertheless, 
Federal taxpayers will subsidize sports stadiums' construction 
to the tune of about $2 billion, according to the written 
testimony of Professor Long. What did Federal taxpayers receive 
in exchange for that?
    Mr. Solomon. Well, what the code does is it leaves it to 
the discretion. The current Internal Revenue Code leaves to the 
discretion of State and local governments to make the decision 
whether or not these projects are sufficiently important.
    I would also just want to add, as an observation, a GAO 
report in 2006 noted that there were about $5.3 billion of 
stadium tax-exempt bonds. Total, there are about a trillion 
dollars in governmental bonds.
    Mr. Kucinich. Trillion?
    Mr. Solomon. Trillion.
    Mr. Kucinich. OK. Well, I would like to go to this issue of 
the benefit principle of taxation. You are familiar with that. 
In part, it is based on the idea that those who benefit from 
services should be the ones who pay for them. Now, let's say 
that City A is told by the owner of a professional sports team 
that they will have to finance a new stadium or the team will 
leave, and let's further say that City B offers twice as much 
to the team to lure it away from City A.
    Now, of course, all the bond financing offered by City B 
and City A, if they choose to give the team what it wants, will 
be tax exempt. Apply the benefit principle of taxation to this 
transaction. How do Federal taxpayers benefit from the team 
moving to City B or, for that matter, staying in City A with a 
new stadium? How do they benefit?
    Mr. Solomon. Well, the current structure of the Internal 
Revenue Code leaves discretion to the State and local 
governments to make these decisions, and that is part of the 
framework. We present in our written testimony possible options 
that one might consider if one were to decide that it is 
inappropriate policy.
    Mr. Kucinich. So you really can't say, is what you are 
    Mr. Solomon. I am not an expert on local economic issues of 
the determinations that State and local governments make as to 
what appropriate projects are.
    Mr. Kucinich. Let me try one more question.
    Mr. Solomon. Sure. Of course.
    Mr. Kucinich. If the economists are right that building 
professional sports stadiums do not raise incomes, create jobs, 
or increase revenues, while new ball parks do increase the 
value of the team franchise, would you say that building a 
professional sports stadium is mostly a private activity, or is 
it a public activity?
    Mr. Solomon. State and local governments and those who are 
in State and local government need to make these decisions. And 
they make these decisions not necessarily on dollars and cents.
    Mr. Kucinich. I see. I got it. I got it. I know where you 
are coming from.
    Mr. Rolnick, would you like to answer that question?
    Mr. Rolnick. Well, our State and local officials are in a 
difficult position. If you are the Governor of Minnesota, you 
don't want to lose the Minnesota Vikings. Even if I convince my 
Governor that it is not a question of jobs, it is very 
difficult to stand back if another State is going to build a 
new stadium. So, as I said in my earlier remarks, we put our 
State and our local officials in difficult positions, and as a 
result the professional sports teams have been very good at 
playing one city off against another and one State off another. 
My estimate is about 80 percent of professional sports 
facilities have been built with public money, and that is 
because they are very good at playing this game.
    There is no public benefit here, Mr. Chairman. Your 
question, the way you raise it, is correct. This is not a 
public good. These are private goods and they would be produced 
if we ended the bidding war.
    Mr. Kucinich. Mr. Solomon, do you want to add something?
    Mr. Solomon. Mr. Chairman, yes, if I might just add one 
    Mr. Kucinich. Sure.
    Mr. Solomon. This issue is broader than just stadiums. This 
issue arises with respect to other kinds of redevelopment 
    Mr. Kucinich. Right.
    Mr. Solomon. We are focusing today on stadiums, but it 
could be other kinds of redevelopment.
    Mr. Kucinich. We understand.
    Mr. Solomon. We will have the same kinds of policy issues.
    Mr. Kucinich. Right. I mean, that point was made in the 
    I am going to go to Mr. Issa.
    Thank you for joining us. The ranking member, the gentleman 
from California.
    Mr. Issa. Thank you, Mr. Chairman. Again, I apologize. 
Because of two markups in 1 day, I have been going between two 
other places.
    Mr. Chairman, I would ask unanimous consent that my written 
opening statement be put in the record.
    Additionally, the part you can't just have in the record is 
a wholehearted congratulations to the chairman on the 
performance of the Cleveland Indians. As someone born and 
raised in Cleveland and someone who was born in 1953--and that 
was a good year for Cleveland. We went through a few bad years 
after that. But certainly, regardless of this being the second 
hearing and the second question on Jacobs Field and plenty of 
other places, I think we can both, as Clevelanders, take pride 
in the performance of the Indians. I just want to make sure 
that got in the record.
    Mr. Kucinich. You know what? I want to thank my good friend 
for pointing that out, and I would like to further say that 
Jacobs Field didn't make the Indians; the Indians made Jacobs 
Field. Thank you.
    The gentleman may proceed.
    Mr. Issa. Thank you.
    I am going to just broaden the subject, Mr. Solomon, 
because I think you are exactly right. We provide tax-free 
municipal bonds to build schools, don't we?
    Mr. Solomon. That is correct.
    Mr. Issa. And kids graduate from high school and leave 
Cleveland, like me to go to California. I graduated from Kent 
State, left. So Kent State's bonds to build university 
facilities, in fact, may have benefited southern California and 
the companies I built out there, but, in fact, it was paid for 
primarily Federal offset, but also Ohio State offset for those 
bonds; isn't that right?
    Mr. Solomon. Correct.
    Mr. Issa. And that goes for noise abatement retaining 
walls. It goes for lots of things which are at least partially 
financed by debt instruments sold with Federal and State 
exemptions. So I guess the first question is: should we, in 
fact--and this may be what you were leading to--question what 
narrow, dramatically, what in fact, can receive at least 
Federal tax exemption, since today everything a State chooses 
to go into debt for is a benefit subject, of course, only to 
the AMT where we sometimes get back what we lose elsewhere?
    Mr. Solomon. Just to add to the point that I made before, 
again, to broaden our conversation is this issue with respect 
to situations whether private use, State and local governments 
are permitted to issue tax-exempt bonds where the decision is 
made to use public funds.
    And it is not limited to situations with stadiums. It 
includes convention centers and all sorts of other kinds of 
projects. The question is how much discretion should be left to 
State and local governments to make these decisions. And one 
might make a decision, a policy decision with respect to 
stadiums, might make a different policy decision for other 
kinds of decisions. But the question is how much and how 
specifically you might want to limit that authority.
    Mr. Issa. Well, let me ask a question that sort of goes to 
the one thing that I think we all understand, which is cities 
can't print money. States can't print money. Only the Federal 
Government prints money, so only the Federal Government can 
essentially monetize its debt; is that correct in your 
    Mr. Solomon. Well, the Federal Government----
    Mr. Issa. I know we don't officially monetize our debt, but 
we certainly have the ability to. We could monetize our debt. 
We have no limit to the amount of debt that we can take on at 
the Federal level, but, more specifically, States and local 
governments have debt ratings. If they get too much debt 
relative to their current earnings, income, and taxes, they 
ultimately pay a higher percentage and they reach a cap where 
they can no longer borrow; is that correct?
    Mr. Solomon. Well, I am not an expert on State and local 
government financing, but certainly, to the extent that State 
and local governments take on too much debt, it creates 
    Mr. Issa. So I will just ask it as a closing question, 
because we are going to run out of time before the vote. 
Essentially, the one thing that we are leaving out of this 
equation is that cities, using cities exclusively here for a 
moment, cities make a decision about where to invest their 
debt, and if they invest, as the city of San Diego did, in a 
number of projects, including a significant new convention 
center and PetCo Park--looks like Jacobs Field, only with a 
little more sunny days--in San Diego--and the Padres are doing 
OK, too, but thank you.
    The fact is, they made that decision. They used up a 
certain amount of debt they could have. And if those debt 
instruments pay no dividends, pay no revenue, then they are 
paying for them out of their general fund, so they particularly 
do that. The cities make that decision.
    Why, in your opinion, are cities making that decision if it 
is a bad business investment? What do you think the real reason 
that cities are voluntarily doing this and continuing to do 
this bidding process?
    Mr. Solomon. Because the cities believe that there are 
various benefits. Perhaps they cannot be specifically 
identified, but there are various and tangible benefits. Of 
course, there are political constraints on their decisions, as 
well as financial constraints.
    Mr. Issa. Thank you.
    Thank you, Mr. Chairman. This really is an opportunity for 
us to question not just the bigger picture of the tax 
structure, but I really appreciate the fact that you have given 
us a chance to look at how various cities either are or are not 
spending their money wisely, and I appreciate it.
    Mr. Kucinich. And I thank the ranking member.
    Mr. Tierney, if he has questions, is recognized.
    Mr. Tierney. I will be happy to do so.
    Mr. Kucinich, I would be happy to invite both of you 
Indians fans to Fenway Park Friday and Saturday night where it 
is obvious you will be getting a thumping, the Indians.
    Mr. Kucinich. You are out of order, of course. [Laughter.]
    Those are such famous last words.
    Mr. Tierney. Yes, they have been some time in the past.
    Mr. Kucinich. Where is the gavel? OK. Go ahead.
    Mr. Tierney. Mr. Solomon, thank you, and thank you also, 
Mr. Rolnick. I appreciate your testimony here today.
    Mr. Solomon, you made some suggestions in your written 
testimony that I welcome, and I notice that most of the 
solutions that you proposed are statutory in nature. I am 
wondering why that is. Don't you feel as though you could do 
more on the regulatory basis using your existing powers?
    Mr. Solomon. Our job is to interpret the statutory 
framework, and the statutory framework we believe is clear that 
the statute and the legislative history are clear that bonds, 
in a situation where there is private use, can nevertheless 
qualify as governmental bonds as long as the bonds are paid 
from governmental funds, including generally applicable taxes. 
So we believe that the statute and legislative history put that 
constraint upon us.
    The 1986 legislative history is very clear that a bond can 
still be treated as a governmental bond, even if there is 
private use, as long as the bonds are paid from generally 
applicable taxes.
    Mr. Tierney. So are you indicating that you don't think 
that you could just determine that a PILOT that was used 
specifically for stadium construction is not generally used for 
public purpose and make that determination? Do you feel 
constrained from doing that?
    Mr. Solomon. We do not think that we could write 
regulations that say that stadium financing cannot be done 
through the use of public funds. We do not believe that we have 
that authority. And so if a stadium is financed and the State 
or local government says it will come out of general taxes or 
their equivalent, which are the PILOTs, the payments in lieu of 
taxes, we don't think we can change that rule. That will 
require Congress to change that rule. That structure is built 
into the fabric of what was done in 1986.
    In 1986, Congress said you can't use private activity bonds 
for these kinds of activities, but, nevertheless, Congress 
nevertheless left the flexibility to say that you can engage in 
these activities using governmental bonds as long as the 
governmental bonds are paid for with general governmental 
    Mr. Tierney. Thank you for that.
    I yield back, Mr. Chairman. Thank you.
    Mr. Kucinich. All right.
    I thank the gentleman. I just want to ask a quick question 
here on what Treasury was trying to do with the PLR and the 
rule change.
    Mr. Solomon, there are two accounts of the IRS's attempt to 
regulate PILOTs for stadium construction, one presented by Mr. 
Korb in his March 29th testimony to this committee, and a 
contrary account that I believe is more consistent with the 
regulatory history. Mr. Korb repeatedly testified that the IRS 
was compelled by the 1997 regulations to conclude for its 2006 
private letter rulings that PILOTs used to pay for bonds issued 
to finance stadium construction should be treated as generally 
applicable tax and not a special charge.
    He further testified that the proposed regulations were 
designed to close the loophole and make it more difficult to 
use PILOTs. Under the contrary account, the IRS's issuance of 
the private letter rulings in 2006 made it easier, not tougher, 
to publicly finance stadiums by explicitly allowing stadiums to 
be financed by PILOTs made by the teams, instead of the 
previous practice of financing stadiums through the imposition 
of taxes borne generally by the public, like entertainment and 
sales taxes.
    The private letter rulings, far from being compelled by the 
1997 regulations, presented a new and arguably impermissible 
interpretation of them and prompted the IRS to propose 
regulations that would put PILOTs on a firmer regulatory 
footing. This account is supported by a number of facts, many 
of which are ignored by Mr. Korb, including the fact that the 
proposed regulations would delete the following sentence from 
the existing regulation. Here it is: ``For example, a PILOT 
made in consideration for the use of property financed with 
tax-exempt bonds is treated as a special charge.'' This 
language suggests that PILOTs should not be permitted to fund 
stadium construction.
    Because a full response to this question is not possible 
here, given the time constraints, I am going to present this 
question to you in a more-detailed form of a letter, and I 
wonder if you have any basic view on which of these accounts is 
more accurate.
    Mr. Solomon. Very briefly, the private letter rules issued 
by the Internal Revenue Service to private taxpayers preceded 
the proposed regulations. Proposed regulations were intended to 
tighten the rules, to tighten the rules with respect to 
payments in lieu of taxes, to cut back on the use of payments 
in lieu of taxes. So chronologically the private letter rules 
preceded the proposed regulations. The proposed regulations are 
intended to tighten the standard for treating payments in lieu 
of taxes as the equivalent of general taxes.
    Mr. Kucinich. I thank the gentleman. We will followup with 
that letter.
    [The information referred to follows:]

    Mr. Kucinich. We are going to have to recess. We have a 
number of votes. Staff informs me a 45-minute recess would be 
    We are done with Mr. Solomon. Mr. Solomon, do you have to 
    Mr. Solomon. I have to leave at 4, so I could stay for a 
    Mr. Kucinich. Well, I am going to ask you gentlemen if you 
can stay. It is up to you. I don't have any more questions of 
you, but I do have some questions of Mr. Rolnick.
    Mr. Rolnick. We will come back.
    Mr. Kucinich. We will come back, so the committee is 
recessed for 45 minutes. Thank you.
    Mr. Davis of Illinois [presiding]. The meeting will return 
to order. Who knows? Our chairman may very well have been 
summoned by a reporter who wanted to know about the White House 
and things like that. The chairman has not made it back, and so 
we will try to begin, because I wanted to get a question in to 
Mr. Solomon if I could before he had to leave.
    Mr. Solomon, prior to the 2006 IRS private letter ruling 
for the Yankee Stadium, had any tax-exempt stadium construction 
debt been serviced with a payment in lieu of taxes?
    Mr. Solomon. I do not know the answer to your question, 
Congressman. The private letter rule process is run by the 
Internal Revenue Service. I am in the Office of Tax Policy. I 
could get back to you with respect to the answer to your 
question, but I would have to ask them and I would have to 
research the private letter rulings. So what I would do is I 
would go to the IRS, their rulings branch, and ask them what 
they have done in this area. I am sorry that I can't answer 
your question off the top of my head.
    Mr. Davis of Illinois. All right. We would appreciate if 
you could send us the answer to that in writing.
    Mr. Solomon. Yes, sir.
    Mr. Davis of Illinois. You also testified that you have 
proposed rulemaking that would tighten the PILOT rules. If 
those rules had been in effect when the Yankees' 
representatives applied for a private letter ruling, would they 
have been able to use a PILOT to service those bonds?
    Mr. Solomon. I can't speak about any particular taxpayers 
because of matters of taxpayer confidentiality. I can tell you 
that the proposed regulations do state that a fixed payment 
cannot qualify as a payment in lieu of taxes, so a fixed 
payment, rather than one that is tied to property taxes, that 
is either tied to valuation either in proportion evaluation or 
a certain amount different from what would be charged for 
property taxes, a fixed payment would not qualify under the 
proposed regulations, which is a tightening of the rules.
    Mr. Davis of Illinois. All right. Thank you.
    Mr. Rolnick, let me ask you, if I could, when public 
resources are used to finance or subsidize private deals, what 
should be the expected return? I mean, what should the public 
expect in return for that investment? I mean, you would have to 
call it an investment or a give-away, in a sense, but I would 
call it an investment. What should the public expect in return?
    Mr. Rolnick. Address the question of public investments, 
public funds going to private investment. Where you stand 
matters a lot. If you are looking, do you think very parochial 
view? If you are the city of St. Paul and you attract a new 
software company, that creates jobs in the city. It has 
multiplier effects, meaning the new jobs, people spend money, 
and it is a way to enhance your economic activity, and actually 
you might end up with more revenue that way to provide the 
public services you want, and that is usually the rationale.
    The problem with that perspective, it falls apart pretty 
quickly once you take a broader perspective. Suppose, for 
example, the company that you just lured to St. Paul came from 
Minneapolis, so the positive effects in St. Paul are negative 
effects in Minneapolis. The positive multiplier effects in St. 
Paul are negative multiplier effects in Minneapolis.
    So from the State's point of view--so you are not wearing 
your city hat, if you will, you are wearing your State hat, you 
are the Governor of the State and you are watching public 
money, which you desperately need for your public 
infrastructure or you could use to lower taxes for all 
businesses. You are getting a zero public return. Even though 
St. Paul is going to get positive return, Minneapolis is 
getting a negative return.
    In total, if by the public you mean the citizens of the 
State, there is a zero return. In fact, as I argued earlier, 
you could make the case it might be negative because you are 
interfering in market location decisions, and many times I 
would argue these subsidies are bluffs. That is, it would have 
happened, anyway, even without the incentives.
    Every once in a while the incentives do affect a location 
decision, and you have to wonder if that is the best location 
decision for that company.
    So your question, at a parochial level it might look like a 
positive return, but once you look at a broader level it is a 
zero return and maybe a negative return to the public.
    Mr. Davis of Illinois. Well, let me ask, What if the 
proposers are suggesting that you are going to draw people into 
the area who otherwise would not come, and that there is going 
to be some residual impact that will go to other places outside 
of what it is that you are primarily dealing with.
    Mr. Rolnick. Mr. Chair, I think you still run into the same 
problem. Where are they coming from? In Minnesota, for example, 
we now have something called the Job Z Zone, which is to try to 
promote economic development in out-State Minnesota with 
subsidies and preferential tax treatment, and some of the 
relocation would have happened anyway. Some of it is coming 
from the Twin Cities. Some of it is coming from Wisconsin. So 
guess what? The State of Wisconsin now has their Job Zone, and 
they are now attracting companies from Minnesota to go to 
    So at the end of the day, if you look at the big picture of 
the game, the winners are these companies that are footloose 
and are able to take advantage of playing one city or one State 
off against another, but the public is not benefiting. There is 
no new jobs there; they are just being moved around.
    If there are spill-over effects, the market is very good at 
capturing spill-over effect synergies by being around other 
companies. They know that. Companies are very good at location 
decisions. Generally speaking, the best companies, the ones 
that are going to create their jobs in the future, they want to 
be around educated workers, they want to be around highly 
educated, institutional arrangements so that I have argued for 
many years the best way to promote an economy locally, 
regionally, nationally, and internationally is to do a better 
job educating your kids and educating your workers.
    Mr. Davis of Illinois. Thank you very much.
    I see that the chairman has returned.
    [The prepared statement of Hon. Danny K. Davis follows:]

    Mr. Kucinich [presiding]. I thought you looked pretty good 
there, Chairman.
    I want to thank Mr. Davis. Actually, I was kind of admiring 
him sitting here, because I was listening to that rich, 
mellifluous voice, taking lessons. Thank you very much, Mr. 
    Mr. Solomon, I am informed, needs to leave to keep another 
commitment, so you are discharged. The committee thanks you.
    Mr. Solomon. Thank you.
    Mr. Kucinich. Thank you, sir.
    Mr. Issa.
    Mr. Issa. I will do a couple more questions, and I, too, 
thank you, Mr. Solomon. You were a big help to us looking at 
the problem in a larger way.
    I guess you get to be the only person, so you get all the 
questions now. If the State of California has a 10 percent 
income tax, the State of Florida has no income tax, isn't that 
every bit as much one State competing against another for a 
zero sum gain?
    Mr. Rolnick. In my earlier testimony I mentioned there is a 
form of competition that, after all, is good competition, 
effective competition. It is when cities and States compete to 
see who can provide the highest quality public goods at the 
lowest cost. Then people vote with their feet, so a high tax 
State like Minnesota provides, on average, pretty good public 
services. We have and we have been known to have terrific 
educational system, high-quality workers. You, as a citizen, 
can decide to move to Minnesota and pay higher taxes or move to 
another State, like Florida, that has lower taxes, and in turn 
the public services aren't going to be as good.
    It is very difficult for State and local officials to 
decide how much you should produce. The ability for people to 
choose where they want to live is one way, the market, if you 
will, and that is the good competition that can help State and 
local officials decide.
    So the point of your question is a good one. There is a 
form of competition. It is non-preferential. It is the type of 
goods that benefit all society, what economists call public 
goods non-rivalrous; that is, education, safety, good air 
quality. These are all things we all benefit from. That is a 
clear distinction between private goods. The market works well 
for private goods. We don't need government interfering there.
    Mr. Issa. You know, I appreciate that, but let me 
hypothecate another question, if you will.
    Mr. Rolnick. Sure.
    Mr. Issa. Case Western Reserve University has had a very 
controversial presidency come and go. These are million-dollar 
individuals. A million dollars. Now, Case happens to be 
private. We can go to Kent State has a brand new almost three-
quarters of a million dollar package president. They made a 
decision. A public entity made a decision to pay an awful lot 
of money to get an individual. They will pay a lot of money to 
get a whole wing of individuals. So when you talk about 
education, which I certainly think is a core element of cities, 
counties, and even States, that is just part of the package.
    In Cleveland, where the chairman and I are both from, we 
have one of the finest metropolitan park systems. Again, these 
are part of the competition.
    We have minor league teams. We have major league teams. We 
have indoor and outdoor centers that have everything from the 
Beach Boys playing to more intimate activities when the 
basketball team isn't playing. Why are those not part of the 
same package of local control and local decisionmaking that a 
city makes in harmony with its goal to have so many hotel 
rooms, to have so much of this, that, and the next thing? Why 
is that any different?
    Regardless of who gets the benefit--and I appreciate that 
some people would say, yes, but we are giving $400 million of 
value to an already rich person who owns a professional sports 
team. But if you take away who is the recipient, because, you 
know, for the most part landlords are the rich, why is it that 
the decision to acquire these assets aren't part of the local 
decision and the right of the city to make?
    Mr. Rolnick. So let me answer in a broad way with the 
Minnesota example, and then I will get specifically to 
    Minnesota has one of the best economies in this country 
today. It has attracted Fortune 500 companies. I think we are 
the No. 1 per capita in Fortune 500 companies. We have a very 
high per capita income. We have some of the lowest unemployment 
rates for many years in the country. It is a very efficient 
market. So a question, how did Minnesota become that way? Was 
it because of entertainment? Did they get there because they 
had the Minnesota Twins and the Minnesota Vikings and the 
Timber Wolves? Or did something else go on?
    We did a study of Minnesota's economy that went back to 
1920. In 1920, Minnesota's economy was well below the national 
average. The big difference was after World War II the State of 
Minnesota started pouring money into education. We do a much 
better job now of graduating our kids from high school.
    Mr. Issa. And I appreciate all of that.
    Mr. Rolnick. My point is the underlying cause of the growth 
was education, high quality. That attracts on its own, without 
government interference, attracts the businesses.
    Mr. Issa. I appreciate your opinion, but it is your 
opinion. Your conclusions are drawn by a cause and effect in a 
State that has professional sports, that, in fact, has been 
involved in the same sort of activities of competition to 
attract and keep those professional sports teams, or 
corporations that might choose to move somewhere else if they 
don't get tax abatement and so on.
    So, although anecdotally I will accept that your truism is 
probably a good one, my question was local rights, the right of 
the local municipality, or State's rights to make these 
decisions, right or wrong. Under federalism we start off with 
the assumption that States and their derivative entities have 
these rights unless we preempt them, either in the Constitution 
or in statute specifically needed by the Federal Government.
    So, again, why should I take away an equal right in 
decisionmaking that the city of Cleveland thinks that 
maintaining the league-winning Cleveland Indians is a good idea 
for a city that otherwise was written off as part of the Rust 
Belt with no hope decades ago, in addition to having Case 
Western Reserve, Baldwin Wallace, Cleveland State, and a host 
of other fine universities, parks, symphonies, and so on, 
because I am a proud former Clevelander who accepts that 
Cleveland has all the best things in life except weather and, 
in fact, also maintains these sports teams. Why is that not a 
legitimate part of the decision of the State and their 
derivative entities?
    Mr. Rolnick. Mr. Chair, the answer was partly in your 
question. Go back to the history of the Constitution and the 
Commerce Clause, what Madison and Hamilton had in mind. Under 
the Articles of Confederation, States----
    Mr. Issa. You had better be careful. They didn't think of 
Federal income tax.
    Mr. Rolnick. Well, they didn't think of that, but States 
were putting taxes, imports, restricting trade among the 
States. Both Hamilton and Madison were pretty good economists. 
They realized that to create a strong national economy we 
should not allow cities and States to interfere with interstate 
commerce. We also in the Constitution prohibit States, as you 
raised earlier, the right to issue bills of credit, which are 
    I am going to argue that allowing cities and States to 
preferentially go after each other's companies, whether it is 
sports teams, automobile factories, is a zero sum game. By 
luring an automobile company from Toledo to Detroit or vice-
versa from a national perspective doesn't create any new jobs. 
The private market will take care of these companies.
    Your original point with Cleveland, that is entertainment, 
that is private market. If Cleveland has a good economy, it 
will attract all kinds of entertainment. You don't have to 
subsidize entertainment. You are assuming that if you didn't 
subsidize that entertainment it wouldn't be there. I am going 
to argue at a national level if we don't allow cities and 
States to subsidize private companies, the private market will 
work just fine. They will figure out the best location 
    What the public has to do, what government has to do, is 
public goods. That is not entertainment. Entertainment is a 
private market system. It will work just fine. There is no 
market failure.
    So I would argue, if you want to argue States' rights, I 
would argue this is very similar to prohibiting cities and 
States from interfering with interstate commerce with taxes. It 
is very consistent with making sure we have a strong national 
    The European Union, it is interesting, one of the first 
things they did is eliminated the subsidy wars that were going 
on between their countries.
    Mr. Issa. I know, and the Russians then bought alternative 
teams. But I guess that is free market at its finest.
    One final question, which is off of the core subject but 
important to me.
    Mr. Rolnick. Sure.
    Mr. Issa. If we were to take away public bonding, do you 
believe that cities, in order to ensure that they had the 
facility, regardless of who pays for it, should be able to 
continue using its eminent domain in order to ensure that there 
was a facility in a location agreeable to the city? In other 
words, Jacobs Field, if it was 100 percent privately paid, 
would never have been built anywhere in downtown without the 
right to condemn and take at a fair price the land that was 
taken. What do you say to that?
    Mr. Rolnick. My view on eminent domain and the spirit of 
eminent domain, it is an abuse to use eminent domain to take 
from one private company and give to another. Eminent domain 
was strictly supposed to be used to build a public 
institution--a library, a school, not a sports stadium. So I 
have a lot of trouble.
    Mr. Issa. Thank you, sir.
    Thank you, Mr. Chairman.
    Mr. Kucinich. My good friend from California raises some 
very serious public policy questions here that I would like to 
meet from another perspective.
    We have the issue of the public good, as distinguished from 
the private benefit. This is a consistent and common theme in 
the United States, and it has been going on for over a hundred 
    We have what is called public utilities--water systems, 
sewer systems, light systems. We call airports public 
utilities. It is commonly understood that the public has 
certain things they can invest in in order to be able to assure 
a public benefit. If we accept the argument that there is a 
public benefit to having a sports team, why, then, using that 
logic, could not the public use its money to buy a sports team 
which then the public would own, instead of the public using 
its money to buy a stadium for the private owners while the 
owners still own the team? Do you see where I am going with 
    Mr. Rolnick. Yes.
    Mr. Kucinich. Would you comment on that?
    Mr. Rolnick. I have heard the argument before, Mr. 
Chairman, in my mind, two bad choices: either you subsidize the 
stadium or you buy the team, itself. In either way I think it 
is not a very efficient use of public money. I will admit there 
is some publicness to professional sports teams. We can all 
root for our team without ever having to go to a game, to not 
have to pay a dime. When economists have tried to measure the 
value of that publicness, it falls far short of owning a team 
or buying a stadium.
    In Minneapolis, at the time that we laid out $400 million, 
when Hennepin County, through a sales tax, laid out $400 
million for that stadium, you can argue maybe they could have 
bought the team, whatever. At the same time, they were closing 
libraries in the city of Minneapolis, reducing the hours of the 
ones that were left open. So recognize, as economists will say, 
there are opportunity costs here. Lest we think that business 
you can make a lot of money at----
    Mr. Kucinich. Right. It is conceivable.
    Mr. Rolnick. That is a question.
    Mr. Kucinich. Is it conceivable that if you had a team--
now, we are looking at figures that show that the value of 
teams go up when the public throws in an investment of a 
    Mr. Rolnick. Right. And you would like----
    Mr. Kucinich. Some of those values go up tremendously. So 
is it conceivable that if a community owns a team and the value 
of the team goes up and maybe they get into the playoffs and 
win a championship and go to the World Series, that you could 
actually use those revenues to reduce taxes in a community?
    Mr. Rolnick. Mr. Chairman, they like to say in Minnesota we 
are all above average. All teams can't be above average, and 
there are going to be some losing teams.
    Mr. Kucinich. Right.
    Mr. Rolnick. Now is a State then going to be in a position 
to have to purchase a high-price pitcher so we can have a 
winning team? I would rather have my public officials spending 
time concentrating on public goods like early childhood 
    Mr. Kucinich. I am not disagreeing with that, but I think 
that a case could be made. When is the last time a major league 
chain was actually worth less money in succeeding years, that 
it dropped in value? When was the last time that it lost 
significant amounts of money? I am talking about two books 
    So the point I am making, because in Cleveland, for 
example, having major league sports is a big deal. It is. When 
we had the debate over Gateway years ago, I actually opposed 
building it, and did so publicly because I felt that the 
taxpayers--well, some of the same arguments that you are 
raising today. We had Municipal Stadium, where the Indians and 
the Browns played.
    What I proposed is if we wanted to assure that the teams 
stay in town--and that is really the issue here. The issue is 
always whether the teams are going to stay in the city. Why do 
people build stadiums? Why is the public interested in 
investing? They want to make sure they don't lose the team.
    So if the question is keeping the team, then it seems to 
me, if that is the public good we are talking about, then I 
don't see anything wrong--and I know my friend here from 
California might have a different opinion----
    Mr. Issa. From Cleveland in California.
    Mr. Kucinich. From Cleveland in California--and I want to 
take issue with your indirect criticism of our winters.
    Mr. Issa. I was talking about the summers.
    Mr. Kucinich. Oh, the summers. We are one of the few places 
in America which has a ski resort a few miles from a steel 
    The point being that I don't think that public ownership of 
these franchises should be de-linked from a public good for the 
community; that it might be harmonious.
    Now, when we get to the actual ranking what the priorities 
are in a community--to repair your bridges, are your schools 
falling apart, what kind of condition are your roads in. Here 
again, just before you came in what I suggested, if a city 
actually invested in a team and owned part of a team, they 
could take the profits from that and pour it into reducing 
taxes or providing services.
    I know, again, the example is of private enterprise to say 
wait a minute, you are getting into private enterprise. But 
some people say that, too, of water systems, sewer systems, 
electric systems. I am just injecting that as another dimension 
in this which seldom gets discussed and it is one of the 
reasons, motivating factors that I have brought that forward.
    Mr. Issa, do you have any other questions? We will go to 
the next panel.
    Mr. Issa. No. I think it has been an excellent panel. Thank 
    Mr. Kucinich. All right. I will just ask one more question.
    The Governor of Minnesota had reportedly vetoed at least 
one increase in the gasoline tax which funds bridges and road 
repair prior to the I-35 West bridge collapse. He signed a bill 
permitting the increase in the Hennepin County sales tax to 
fund a new stadium for the Twins during that same period. So 
there is a political process here that needs to be reviewed.
    Should it give Congress comfort that elected officials 
will, on their own, make the tough choices to prioritize 
critical public infrastructure over give-aways to private 
concerns? Again, that is the dynamic tension we are looking at 
here, to go back to my friend from California. I mean, we have 
to freely understand the pressures that are on communities who 
don't want to lose a team. But what about it?
    Mr. Rolnick. Mr. Chair, it goes back to my original point. 
I think I understand your attempt to a better solution than 
simply subsidizing stadium, having the city or the State buy 
the team, but I think a much more effective solution is to have 
Congress end the bidding war. These teams would not be 
footloose and fancy free. They know where their markets are. 
They are making money. They wouldn't be moving around as much 
as they threaten to do if we no longer allowed cities and 
States to subsidize these teams.
    Mr. Kucinich. One final question, and then I will go to Mr. 
Issa again.
    Mr. Rolnick. Sure.
    Mr. Kucinich. In our previous hearing we heard the argument 
made that when one municipality lures a specific business away 
from another, there could be a distributional benefit, even if 
there is no net national benefit. That is, a poor community 
could benefit from hosting a business that would otherwise have 
been located in a more affluent community.
    Can you comment on this distributional benefit to allowing 
States and municipalities to compete with one another for 
specific businesses?
    Mr. Rolnick. Sure.
    Mr. Kucinich. And does this distributional benefit justify 
the Federal tax expenditure?
    You can answer that question, and then I want to go to Mr. 
Issa for a final question.
    Mr. Rolnick. There is no evidence, Mr. Chair, that the 
distributional benefits go that way. If anything, the richer 
communities are the ones that outbid the poorer communities. My 
home town of Detroit is an example of where you have two new 
stadiums, three casinos, attempts to revitalize a community and 
not look at the fundamental problem, which is educating their 
    These are distractions. The notion that there is going to 
be distributional benefits for low-income families in these 
bidding wars is, I think, unsupported by any evidence that I 
have seen. If anything, these subsidies end up in the hands of 
very wealthy and successful business people.
    Mr. Kucinich. Thank you, Mr. Rolnick.
    Mr. Issa.
    Mr. Issa. There is no argument that we talk about more here 
in Washington than redistribution of wealth. Nobody on the dias 
here is going to say please give billionaires more money. I do 
think it is interesting that if Cleveland would just buy the 
Indians, then it could, of course, have a cap of $125,000 a 
year for the salaries of those individuals as city workers, and 
I know that would make it a much more affordable team. They 
wouldn't be in the playoffs. But that is a separate question.
    I will ask it in two phases. Are you aware that Minnesota 
could have and perhaps should have rebuilt its own bridge that 
it did deferred maintenance on and let fall down when it had a 
$2.1 billion surplus? And the reason I ask that question is I 
appreciate your zero sum game question, but, see, as a former 
Clevelander, I am now a Californian. We contribute about one-
eighth of the cost of the Federal Government, so when the 
Federal Government handed out a freebie quickly to Minnesota, 
what we really did was we gave away money that we don't get 
back in California. California gets back less than $0.76 on 
every $1 it sends. So in the co-question of zero sum game and 
redistribution, essentially wouldn't it be fair for Minnesota 
to take care of all of Minnesota's responsibilities and we in 
Washington to quit handing out quickie bills voted overnight in 
lump sums against a bridge that doesn't even have the first 
quote on it?
    In fact, since your opening testimony talked about I-35 W, 
why is it, with a $2.1 billion surplus, we had to vote at all? 
Why wasn't Minnesota assuring the people of Minnesota that it 
would rebuild their bridge that they deferred maintenance on?
    Mr. Rolnick. Let me just say Minnesota, like California, 
receives less in public funds than it----
    Mr. Issa. But not on that day.
    Mr. Rolnick. Not on that day. I really can't comment on the 
details of the decisions on the bridges. They are complicated 
issues, and it is being debated today. I think it is important 
for government to take a lesson from what went wrong. I think 
nationwide we are way under-investing in infrastructure. I 
don't think Minnesota is the only case in point. I think the 
argument I am trying to make today, in a major distraction, not 
just in terms of money but in time, it is trying to lure each 
other's companies with these tax incentives, and I would 
strongly argue that if we ended this economic bidding war you 
would find State and local governments doing a much better job 
of meeting the direct public needs that we expect.
    Mr. Issa. The reason I ask this question is, you know, I am 
in southern California where we pay road taxes and we don't get 
it back to build our roads, even though we are growing, so we 
end up paying it with local money. Northern California and 
other places like it, they get huge, huge public works projects 
to build Metro. In San Francisco it is called BART. And 10.2 
percent of the bonds issued--and this is, of course, 
nationally, but we will just assume for a moment that it was 
California--goes to transit. The debt for transit is 10 percent 
of the debt, while the debt for stadiums apparently is 0.4 
    On a scale, realizing you would like one to be zero, but, 
you know, 25 times as much spent on public transportation, 
isn't that, in fact, a reasonable--if someone told you we spent 
25 times as much on transit systems as we send on stadiums, 
wouldn't you say, Well, that is pretty good, before you said it 
should be zero, it should be infinite times? Wouldn't you say 
25 times as much is pretty good?
    Mr. Rolnick. So if you are in business, Mr. Chair, if you 
are in business, the way you ask the question is where should 
my next dollars be invested, and you are always looking for the 
low-hanging fruit, the highest return. So I urge you, instead 
of looking at that ratio, to say what is the return on that 
public investment.
    Now, as I mentioned earlier in my testimony, we did an 
exercise like that with----
    Mr. Issa. Recognizing that transit is one of the lowest 
returns, when we build transit what we have to do is keep 
subsidizing it forever. It never breaks even and never pays. 
The Metro system here has $3 in subsidies for every $1 paid by 
the people that ride it.
    Mr. Rolnick. I know there have been some fairly 
sophisticated analyses looking at how it reduces pollution, 
congestion, etc. I am not defending the money going into 
transportation, necessarily; I am just saying that the way you 
should make these decisions is to look at the next dollar. 
Where is the benefits relative to the cost the highest. When we 
did that and we looked at high-quality early childhood 
education starting prenatal to five, we found extraordinary 
    Mr. Issa. I am sure you did. Did you also look at----
    Mr. Rolnick. So I will put that up against transportation 
and the stadium.
    Mr. Issa. Did you also look at physical fitness, health and 
welfare, aspirations of young people, everything else that goes 
when they go to one professional baseball game and they say, I 
want to be like that. I want to join my Pop Warner and I am 
going to do this. Did you apply those same metrics to that?
    Mr. Rolnick. Yes, we did. We actually did, and we do know 
that baseball is going to exist in this country whether we 
subsidize it or not.
    It was interesting, when the Minnesota hockey team left 
Minneapolis for Dallas a number of years ago, what happened 
with those kids who loved hockey? They started to go to the 
high school games, they started to go to the college games. It 
isn't that sports entertainment disappears; they started to go 
to some of the minor league games. So recognize this 
entertainment is going to exist, but if you don't educate those 
kids starting at prenatal to five and they start school behind, 
the market doesn't fix that. Those are the kids that end up 
behind. Those are the kids that cost society a huge amount of 
    Entertainment will be there. I will guarantee you if we end 
the bidding war between cities and States, you will still see 
virtually every one of these teams in the major cities as they 
are today, and your kids will be able to root for them.
    Mr. Issa. Thank you.
    Thank you, Mr. Chairman.
    Mr. Kucinich. I thank Mr. Issa for his questions.
    I want to thank Mr. Rolnick for his participation and his 
patience with this process of being interrupted by votes.
    Mr. Rolnick. Thank you.
    Mr. Kucinich. You are much appreciated. This committee 
wants to thank you.
    We are going to move on to our next panel and thank them 
for waiting, as well.
    On our second panel, the subcommittee is going to hear from 
Professor Judith Grant Long, who is assistant professor of 
urban planning at the Harvard University Graduate School of 
Design. Professor Long's research interests focus on physical 
planning, with particular attention to the growing role of 
sports, tourism, and cultural infrastructure in cities. Her 
recent publications include, Full Count: The Real Cost of 
Public Funding for major league Sports Facilities; Facility 
Finance: Measurement Trends and Analyses; Transforming Federal 
Property Management: The Case for Public/Private Partnerships. 
She is completing a book currently entitled City Sports: 
Stadiums and Arenas as Urban Development Catalysts.
    A certified professional planner, Professor Long has 
practiced extensively at the local level of government in the 
Toronto area, managing innovative strategies for downtown 
development and historic preservation. Her honors include 
grants and awards from the U.S. Department of Housing and Urban 
Development, the IBM Center for the Business of Government, the 
Canada Mortgage and Housing Corp., the Ontario Professional 
Planners Institute. She is a recipient of the Gerald M. McHugh 
Medal awarded by the GSD.
    Professor Long served as assistant professor of urban 
planning at Rutgers from 2002 to 2005, a design critic at GSD 
during 2005 to 2006. She received her B.A. in economics from 
Huron College at the University of Western Ontario, Canada; her 
BAA in urban and regional planning from Ryerson Polytechnic 
University in Canada, her MDES from GSD, and her Ph.D. in urban 
planning from Harvard Graduate School of Arts and Sciences. 
    Professor David Hale is the director of Aging 
Infrastructure Systems Center of Excellence, at the University 
of Alabama. The AISCE works to mitigate and reverse the effects 
of aging on the Nation's public and private sector 
infrastructure by using systematic cross-industry application 
of engineered processes and techniques. Dr. Hale's research has 
resulted in over 50 scholarly and infrastructure systems 
professional publications in journals and conference 
    Dr. Hale's research has been funded by the National Science 
Foundation, the U.S. Department of Commerce, the U.S. 
Department of Transportation, U.S. Army Corps of Engineers, 
Accenture, Alabama Department of Transportation, Computer 
Sciences Corp., KPMG Peat Marwick Research Foundation, Proctor 
and Gamble, Sterling Software, Texas Instruments, and 
University Transportation Centers of Alabama. He has consulted 
for a number of the largest corporations in America.
    Dr. Hale currently serves on the State of Alabama's 
Infrastructure Commission and the Governor's Black Belt Task 
Force and the State's Information Technology Workforce 
Development Resource Center. He also directs the Aging 
Infrastructure Systems Center of Excellence at the University 
of Alabama.
    Ms. Bettina Damiani is the project director of Good Jobs 
New York, which promotes policies which hold government 
officials and corporations accountable to the taxpayers of New 
York City. At the Good Jobs New York, Ms. Damiani has worked to 
bring more transparency and public participation to the 
allocation of subsidies to large economic development projects, 
including the rebuilding of the World Trade Center site and the 
new Yankees Stadium in South Bronx. She is a founder of the 
Liberty Bond Housing Coalition, which advocated for the use of 
post-September 11th financing to create affordable housing for 
middle- and low-income New Yorkers.
    Ms. Damiani has a BA in communications and peace studies 
from Manhattan College and has a master's of urban affairs from 
Hunter College. She is a recipient of the 2006-2007 Revson 
Fellowship at Columbia University.
    Dr. Steven Maguire is currently a Specialist in Public 
Financing in the Government and Finance Division of CRS. He 
specialized in the economics of taxation, particularly Federal 
taxation and State and local public finance.
    Recent reports have addressed State use of tax-exempt 
private activity bonds, tax credit bonds, the alternative 
minimum tax deductibility of State and local taxes, internet 
taxes, family tax issues, estate taxes, and estate business 
taxation. In addition to his work at CRS, his Ph.D. 
dissertation examined the public subsidy of professional sports 
    He holds a BA in economics from the University of Tennessee 
and a Ph.D. in economics from the Andrew Young School at 
Georgia State University. He is a member of the National Tax 
Association and American Economic Association.
    Members of the panel, it is the policy of the Committee on 
Oversight and Government Reform to swear in all witnesses 
before they testify.
    [Witnesses sworn.]
    Mr. Kucinich. Let the record show that the witnesses, each 
of them has answered in the affirmative.
    As with panel one, I will ask the witnesses to give an oral 
summary of his or her testimony, to keep this summary under 5 
minutes in duration. Bear in mind that your complete written 
statement will be included in the written record.
    I would ask Professor Long to begin. Thank you very much.



    Ms. Long. Thank you, Mr. Chairman, Ranking Member Issa, and 
members of the subcommittee for the opportunity to speak this 
    I am a professor at the Harvard University Graduate School 
of Design. I am an urban planner and an economist. I, too, 
wrote my dissertation on public subsidies for sports 
facilities, so I look forward to comparing notes with Professor 
    My main area of expertise is the financing and development 
of sports, convention, and tourism facilities.
    The question before the committee today is whether or not 
public subsidies for professional sports facilities divert 
funds and attention away from critical public infrastructure. 
My testimony will focus on three aspects of this issue: first, 
how much public money has been spent subsidizing major league 
sports facilities; second, what portion of this public funding 
has made use of tax-exempt financing; and, third, are public 
subsidies for major league sports facilities indeed diverting 
funds from the repair and maintenance of critical public 
    Turning to the first question, how much public money has 
been spent and continues to be spent to subsidize new major 
league sports facilities, this question is important because 
the ongoing debate about the appropriateness of these subsidies 
depends critically on our ability to accurately measure the 
nature and magnitude of these underlying costs. Starting with 
cost figures provided by the sports industry, public funding 
for the 82 facilities opened between 1990 and 2006 totals 
approximately $12 billion. This estimate is based on an average 
facility price tag of $253 million, an average public subsidy 
of $144 million, translating to an average public share of 57 
    My research, which is now shown for the elucidation of the 
audience who don't have the report in front of you, is 
summarized in a table on the side screens. My research shows 
that these figures are, in fact, the tip of the iceberg. I 
argue that governments pay far more to participate in the 
development of major league sports facilities than is commonly 
understood, due to the routine and ongoing omission of public 
subsidies for land, infrastructure, and, as well, the ongoing 
costs of operations, capital improvements, municipal services, 
and foregone property tax revenues.
    Adjusting for these omissions, my full count estimate of 
total public funding for these same 82 facilities is $18.5 
billion, representing a 55 percent increase over commonly 
reported industry figures, or $6.5 billion in uncounted costs 
These figures are based on an average of $80 million in 
uncounted cost for each individual facility, increasing the 
average public subsidy to $225 million and the average public 
share of total costs increasing from 57 percent to 80 percent.
    My adjusted public cost data can also be applied to broader 
time periods. Over the period from 1950 to 2006, I estimate 
that the public has spent just over $27 billion subsidizing 
capital costs such as building, land, and infrastructure for 
167 major league sports facilities built since 1950. That is an 
average of $155 million per facility. Now, if we add the $6.5 
billion in uncounted ongoing costs and foregone property tax 
revenues for the period of 1990 to 2006, the total public cost 
increases to $31.5 billion. Add the seven new facilities 
scheduled to open in the period of 2007 to 2010, and the total 
public cost increases by another $1.5 billion to just over $33 
billion, and so on.
    As to the second question, what portion of the $18.5 
billion in public subsidies for sports facilities delivered 
between 1990 and 2006 used tax-exempt financing, this is an 
important question because of the ongoing debate about the 
appropriateness of using tax-exempt bonds to finance sports 
facilities, since they offer a discounted cost of capital to 
private individuals paid through a reduction in Federal tax 
    Interpreting my preliminary aggregate data very 
conservatively, I came up with an estimate, for the purposes of 
today's hearing, which was approximately $10 billion of tax-
exempt bonds based on this initial figure from 1990 to 2006 of 
$18.5 billion. But then when I arrived today, I was happy to 
see that Dr. Maguire actually had up-to-date data that 
summarized the total amount of funds used from 1993 to 2006, 
and, while the total figure wasn't provided, my quick math 
estimates at about $16 billion. So, in fact, it is higher than 
the $10 million that I estimated conservatively and represents 
somewhere between 80 to 90 percent, depending on how one 
measures these figures, of the total amount of subsidies 
    Clearly it is an important, if not the major, instrument of 
subsidy delivery in the context of major league sports 
facilities and the public funding for them. What is less clear 
is whether the total amount of public funding would be lower 
for sports facilities and, in fact, how much lower would it be 
if the use of tax-exempt bonds to finance sports facilities was 
    On a smaller scale but still worth noting is the dollar 
value cost associated with the use of tax-exempt financing 
whereby taxpayers are paying a share of reduced interest costs 
through reduced Federal tax revenues. Again, based on my 
conservative estimates, I was using a participation rate of 
about 80 percent of the 62 facilities out of the 82 and came up 
with an average debt issue of $150 million.
    Then with the 2 percentage point spread between the tax-
exempt and market interest rates, the total resulting loss to 
the U.S. Treasury on an annual basis would be approximately $2 
million per facility per year, and over a period of 20 years 
the total lost Federal revenues would be close to $2 billion. 
Again, making use of Dr. Maguire's data, it is clear that this 
amount would be somewhat higher.
    As an example, to finance the Seattle Mariners' new 
ballpark in 1997, King County issued $310 million in tax-exempt 
bonds carrying an interest rate of 5.9 percent at a time when 
equally rated taxable bonds issued by King County carried an 
interest rate of 8 percent. The difference in tax rates 
amounted to $6 million in lost Federal revenues.
    Turning to the third question, could this $18.5 billion 
spent between 1990 and 2006 have been better spent by investing 
in critical public infrastructure, this question of opportunity 
cost is particularly important given the recent and solemn 
reminder in Minneapolis where a bridge collapsed killing 13 
people 1 day before ground was to be broken on a new major 
league ballpark financed with close to $400 million in public 
    A quick look at the numbers reveals that the money spent by 
the public sector on major league sports facilities is relative 
pocket change when compared to the money needed to maintain and 
upgrade critical infrastructure. According to the University of 
Alabama's Aging Infrastructure Systems Center of Excellence, it 
takes approximately $100 billion annually to maintain the 
Nation's infrastructure at its current level of service, and 
over the next 5 years an estimated $1.6 trillion is required to 
bring the Nation's infrastructure up to acceptable standards.
    Viewed nationally, if public funding for sports facilities 
could, indeed, be redirected, the magnitude of spending comes 
nowhere near to solving the infrastructure problem. Even if the 
entire $18.5 billion spent on sports facilities by the public 
sector over the past 16 years could be retroactively applied to 
infrastructure, only 3 months of current operating costs could 
be paid.
    In annual terms, the picture is bleaker, still, since 
annual public spending on major league sports facilities is 
between $1 billion to $2 billion per year, or about $10 million 
per facility. Moreover, these figures assume that the rate of 
new construction will continue, whereas by 2010 over 90 percent 
of the major league facilities' stock will have been replaced 
and a lull in construction activity is anticipated.
    Viewed locally, however, the opportunity cost of public 
funding for sports facilities is more tangible. If the $1 
billion to $2 billion were diverted to the 50-plus U.S. cities 
that host major league sports facilities, the impact is 
sizable. Recapturing $10 million per facility per year--and 
many of these cities have two--would go a long way toward 
ensuring the effective management, maintenance, and upgrading 
of local public infrastructure.
    It is, of course, also helpful to consider diversions other 
than transportation infrastructure, since the mis-match in the 
relative scale of these two public spending issues may, quite 
mistakenly, infer that public funding for sports facilities is 
a token amount and therefore insignificant. Nationally, $1 
billion per year could support a host of worthy public 
programs. To take one example, $100 million is the amount the 
Centers for Disease Control and Prevention plan to distribute 
to help States boost their smallpox vaccination programs.
    Locally, these moneys could be better spent perhaps by 
supporting schools, health care services, and job creation 
programs. $10 million could support the creation of over 200 
local jobs, assuming a cost of $50,000 per job.
    So it appears that there are many ways this money could be 
better spent, depending on one's perspective, yet under 
existing regulations it is unreasonable to expect that State 
and local decisionmakers will be able to fend off the 
considerable political pressure exerted by private individuals 
to gain access to the benefits of tax-exempt financing.
    Diverting public funds away from sports facilities will 
require removing this authority from State and local political 
arena through a prohibition of the use of tax-exempt funds for 
sports facilities. There is very little evidence that there 
have been $18.5 billion in public benefits generated since 1990 
to compensate for the $18.5 billion in public costs that have 
been expended.
    Mr. Issa [presiding]. Thank you, Professor. The rest of 
your statement can be put in the record. You are at twice your 
    Ms. Long. I apologize. I was just about done.
    Mr. Issa. No problem.
    [The prepared statement of Ms. Long follows:]

    Mr. Issa. Professor Hale.
    And your entire statement, as the chairman said, will be 
placed in the record, so you will be as though you said it all, 
so it is what you say over and above that, in fact, is a 
benefit to you.

                   STATEMENT OF DAVID P. HALE

    Mr. Hale. Thank you for the opportunity to testify 
concerning priority of resource allocation among the Nation's 
aging infrastructure. This statement is meant as an overview of 
the issues that dominate this priority.
    My name is David Hale. As was previously mentioned, I am 
director of the Aging Infrastructure Systems Center of 
Excellence. The Center is a multi-disciplinary research and 
technology transfer center whose mission is to assist the 
public and private sector managing and mitigating the effects 
of aging on the Nation's infrastructure. The Center takes an 
inclusive definition of infrastructure systems that includes 
both man-made and natural infrastructure components. 
Collectively, these systems provide the foundation for economic 
development, safety, security, and quality of life for the 
    The Center is a collaboration among government agencies, 
commercial organizations, and universities whose core set of 
expertise ranges from engineering to business, social, and 
physical sciences. Our Center's focus is work on an integrated 
body of knowledge that crosses fields of science, particularly 
with emphasis on physical structure monitoring and improvement 
based on risk-based analytic procedures.
    This broad perspective leads us to the following. Today the 
consequences of breakdowns in our aging infrastructure is 
staggering. Policy-makers of physical infrastructure systems 
are faced with daunting challenges dealing with prioritization. 
As the chairman stated, in 2005 the American Society of Civil 
Engineers placed a report card in the public hands that 
indicated that all of the Nation's infrastructure had deferred 
maintenance, which corresponded to low performance marks across 
the board. Our roads, schools, dams, and water systems are all 
graded at D or worse. Collectively, $1.6 trillion is needed 
over the next 5 years to bring the Nation's infrastructure into 
good condition.
    Despite staggering consequences that continue to occur on 
an ever-increasing scale, financial resources needed for 
resilient upgrade of the Nation's infrastructure has been slow 
to materialize. The effects of under-funding is evidenced 
throughout our society. Recently we have been witness to 
catastrophic infrastructure failures, as examples are the I-35 
bridge collapse in Minnesota, levee failures in New Orleans, 
contamination of our food supplies, and electrical grid 
    From the chairman's home area in Ohio, at least 35 percent 
of the urban roads are considered congested, which causes 
excess fuel usage and lost time. The average Canton area 
commuter spends $219 a year in excess fuel usage and lost time.
    Likewise, Cincinnati commuters have an average cost of 
$687. In California, 60 percent of the urban roads are 
considered congested, which accounts for the average L.A. 
commuter spending over $1,600 a year. Moreover, 71 percent of 
the major roads in California are considered poor or mediocre 
in terms of condition. This level of upkeep costs the average 
Californian motorist $544 per year, which amounts to $12 
billion for the State as a whole.
    I serve on the State of Alabama Infrastructure Commission. 
In that position I am confronted with the tradeoffs between 
public safety, economic development, ecology, and quality of 
life. I would like to spend some specific time here talking 
about one example.
    The engineering design life of most bridges built in 
Alabama is considered to be 50 years. Currently, Alabama has 
1,489 bridges that were built 50 years or more ago. In the next 
15 years, another 1,495 bridges will reach 50 years of age. 
That is a 100 percent increase that will bring the total number 
of bridges in the inventory of bridges within Alabama from 30 
percent to 60 percent in the over 50 year category.
    Current funding levels for bridge repair and replacement 
are $65 million annually. This creates a backlog of almost $2 
billion today in current dollars, and this backlog will grow to 
$4.5 billion over the next 20 years.
    With such high demand for public sector resources, the 
prudent question continues to be whether public funding for 
sports stadiums squeezes out needed funding for public works 
projects that are critical to the Nation's safety and 
    The issues I am focused on are accountability, 
transparency, and responsibility for decisionmaking processes. 
The complex linkages between allocation decisions and 
infrastructure performance is difficult to trace. The general 
public has little objective evidence to hold its officials 
accountable. Many performance indicators are not mandatory, and 
many of those indicators that are mandatory are not uniformly 
defined, calculated, or disseminated.
    Thank you.
    [The prepared statement of Mr. Hale follows:]

    Mr. Kucinich [presiding]. Thank you very much, Professor 
    Ms. Damiani.


    Ms. Damiani. Thank you. My name is Bettina Damiani. I 
director of Good Jobs New York. We are a joint project of the 
Fiscal Policy Institute based in New York and Good Jobs First 
based in Washington, DC. Good Jobs First is a national resource 
center promoting accountability in economic development 
    For over 2 years, we have been keeping track of the massive 
economic development subsidies going into two of New York's 
stadiums, Yankee Stadium and what is currently Shea Stadium, 
but it will be called City Field when it is all said and done. 
Together, these two projects are going to be costing taxpayers 
$1.2 billion. We have been urging more transparency and 
accountability in these projects, and the bulk of our efforts 
have been around the Yankee Stadium project.
    That is not to say that the Mets are not benefiting from 
taxpayer dollars. They certainly are. But the reality is, a 
process by which the New York Yankees are building their new 
stadium is an affront to the democratic process, frankly. They 
are building their new stadium across the street from their 
current one on what was 22 acres of heavily used park land in 
the South Bronx.
    Now, the way they got this park land was quite remarkable. 
There was not one public hearing. There was not one public 
notice. The process took 9 days. I don't know if you all 
understand the process in Albany, but they don't move quickly 
upstate when it comes to legislature, but they managed to take 
away these parks in 9 days from one of the poorest 
congressional districts in the country.
    This process took not into one ounce consideration for the 
health, the educational, or the employment needs of the people 
in the immediate community, much less the economic benefits 
that it would bring to New York City more broadly.
    The stadium is going to cost about $1.3 billion. As I 
mentioned, it is directly across the street from where it 
currently is located, so it kind of begs the question of the 
new economic development that it might be bringing. It is a 
smaller stadium. Many of the jobs associated with these 
stadiums are part time and low wage. Granted, there are going 
to be construction jobs along with this project, and they are 
certainly good jobs in New York. There are good union jobs 
there. But what is missing is the issue of making sure that 
those jobs will benefit people in New York City and in the 
    There is no guarantee for local residents to be hired. 
There is no job training initiative as a part of this. The New 
York Yankees claim those are community benefits they say 
agreement. It is a mitigation agreement. But nobody is watching 
that store. The only notice that has come out from this project 
about local hiring has come directly from the Yankees, so we 
are quite curious where our local elected officials are and who 
is holding the Yankees accountable. We need to make sure that 
local residents are getting access to job training and actual 
    How did this happen? The Yankees seem to have a variety of 
maneuvers, and one of them was really an all-hands-on-deck 
philosophy. They managed to--and quite brilliantly so, 
depending on how you look at it--hire former public officials 
and former officials in a variety of agencies in which they 
needed approvals from, ranging from for subsidies, for land 
use, and for other infrastructure needs.
    I should mention that the president of the New York Yankees 
is Randy Levine. He was formerly deputy mayor for economic 
development under Rudy Guiliani, so there is quite an insight. 
That is just sort of a large example of how this process really 
started to move along.
    The fix was really in once they took the parks, so in June 
2005 there was a memorandum of understanding between the city 
and the Yankees that everything that happened would, indeed, 
happen, including subsidies and land use and making sure that 
the process went along as efficiently as possible. Our elected 
officials have said that this is a privately funded project. 
There is really nothing further from the truth. It is going to 
cost taxpayers about $795 million.
    Just yesterday there was an approval for parking garages 
associated with this project. There are going to be about 9,000 
parking spaces in a community that has one of the lowest car 
ownership rates in the city and some of the highest asthma 
rates in the city, so it is counter as to where we should be 
putting our money. It should be going into our subways. Those 
are our highways in New York. That is how we get around. We get 
to our baseball games, we get to our work, we get to our 
leisure activities through our subways.
    There is a great issue of whether there is enough money 
going into our subways. The Comptroller recently put out a 
report saying it is going to need an extra $673 million just to 
bring up some basic issues in our subways, making sure we have 
ventilation fans in case there are fires or explosions, bring 
the lighting up to code. And outdated signal systems make the 
system unreliable, and an unreliable New York City subway 
system doesn't do much for our economy.
    Our water system, we have tunnels dating back from 1917 and 
1936 that need to be greatly improved. We love our water in New 
York. We push bottled water aside when we can. We think tap 
water is really the way to go and we want to keep it that way. 
It is going to cost money.
    Our bridges, we have about 800 bridges that are 
questionably structured in New York. The Brooklyn Bridge--
everybody knows the Brooklyn Bridge--is one of the biggest 
concerns in our city, and there are about 10 other bridges that 
actually lead to the Brooklyn Bridge that are under 
consideration as structurally deficient, as well.
    So there is a variety of infrastructure issues in the city 
with the population and growing demands of New York. We expect 
another one million people in the next 20 years, and we have to 
address those needs over the needs of the New York Yankees, 
remembering that they are a private team and they deserve not 
more than what our basic infrastructure deserves.
    Thank you.
    [The prepared statement of Ms. Damiani follows:]

    Mr. Kucinich. Thank you very much for your testimony.
    Dr. Maguire.


    Mr. Maguire. Good afternoon. My name is Steven Maguire, and 
I am a Specialist in Public Finance at the Congressional 
Research Service. I would like to thank Chairman Kucinich, 
Ranking Minority Member Issa, and the committee for allowing me 
the opportunity to testify before you today.
    The Joint Committee on Taxation has recently estimated that 
the Federal exclusion of interest on public purpose State and 
local government bonds will generate a tax expenditure of $156 
billion over the next five fiscal years, 2007 to 2011. This tax 
expenditure includes the expenditures arising from tax-exempt 
bonds issued for public infrastructure, in many cases sports 
stadiums and arenas.
    Today I will present data from the Bond Buyer Yearbook from 
various years. After reviewing these data, two things arise. 
First, annual issuance of private activity bonds has declined 
as a share of total issuance since 1987. Second, viewed from a 
national perspective, bonds used for stadiums do not seem to 
substitute for transportation infrastructure bonds.
    As it is late in the day and most of what I was going to 
say has been said, I will be brief and go right to the data.
    The Bond Buyer reports annual issuance by bond 
characteristics and by function. The bond characteristic at 
issue here is the treatment of bond interest for purposes of 
calculating the alternative minimum tax. A&T bonds are private 
activity bonds whose interest must be added back when 
calculating A&T liability.
    Figure two in my written testimony talks total bond 
issuance and A&T bonds as a subset of that total. The secondary 
axis on the right-hand side in figure two reports the A&T share 
of the total and plots an estimated trend line. The trend line 
clearly shows decline in the annual issuance of private 
activity bonds' share of total volume from 1987 to 2006. From 
this, one could conclude that the volume cap may constrain the 
use of qualified private activity bonds.
    Data on transportation and sports facility bonds: the Bond 
Buyer also reports the type of activity financed by bonds. 
Transportation bonds as defined by the Bond Buyer Yearbook 
includes issues sold for airports, seaports and marine 
terminals, roads, highways, toll roads and bridges, tunnels, 
parking facilities, mass transit systems, and miscellaneous 
transportation projects. Sports facility bonds are included in 
the broader category, public facilities. Notably, the largest 
public facility issue in 2006 reported by the Bond Buyer 
Yearbook was the New York Convention Center Development Corp.'s 
$943 million sale on August 16, 2006, for Yankee Stadium.
    Generally, bonds for transportation infrastructure appear 
to consume roughly 10 percent of total annual bond volume, and 
bonds for stadiums approximately 0.4 percent. Figure three in 
my written testimony charts the annual volume of bonds for 
transportation projects and stadium as a percentage of total 
annual bond volume for the 1987 to 2006 time period. Bonds for 
transportation infrastructure seemed to be trending upward, as 
with stadiums. The trend for stadiums, however, is not as 
robust. In fact, the bonds for Yankee Stadium accounted for 
one-fourth of the total for stadiums from 2006, likely 
generated a one-time spike in the stadium percentage, in turn 
generating the upward slope.
    Conclusions: the data as presented here do not support the 
notion that bonds used for stadia could have been used for 
transportation projects. If so, one would have expected the 
share of transportation bonds to increase more slowly than that 
for stadiums. That is not the case. Nevertheless, the national 
data may mask State-specific or local tradeoffs between bond 
funding for stadiums and transportation infrastructure.
    Thank you, and I look forward to any questions you may 
    [The prepared statement of Mr. Maguire follows:]

    Mr. Kucinich. Thanks again to all members of the panel.
    Professor Long, I would like to begin questioning with you. 
You are a trained urban planner. Does it make sense for urban 
plans to feature a professional sports stadium?
    Ms. Long. Brief elucidation. Are you asking whether or not 
it makes sense for cities to use stadiums and arenas as an 
urban development catalyst?
    Mr. Kucinich. Yes, and also are there other publicly 
financed facilities that make for better cities?
    Ms. Long. Good question, broad question. In terms of 
studies that have looked at whether or not stadiums and arenas 
are effective catalysts in either an urban development sense or 
an economic development sense--and by economic development I 
mean, and this is the term used in most of the studies and in 
previous testimony, economic development is jobs and taxes, 
urban development tends to focus on the physical, i.e., new 
development, reduction in vacancy rate. Then there is a set of 
intangible benefits.
    Mr. Kucinich. So does it make economic sense then?
    Ms. Long. The economic sense, in terms of the data on the 
economy, you have heard previous testimony on this subject 
matter, and the overwhelming consensus is that there are 
negligible new benefits from an economic perspective. From an 
urban development perspective, there are some current 
investigations into this question, and the reason it is a very 
difficult question to answer at this particular point in time 
is that the majority of the new stadiums of this 82 built in 
the last 15 years, the majority of them came online between 
1996 and 2000. If they are intended to anchor new development 
in an under-developed area of a city, it typically takes a time 
horizon of 10 to 15 years to see anything close to 50 percent 
build-out, let alone full build-out.
    So the short answer is not enough time has passed to know 
the answer to that question. The hypothesis from urban planners 
is that we will start to see some physical development in these 
areas that might not have occurred in that city had it not been 
for the facility. So the long answer is it is possible.
    Mr. Kucinich. You have drawn a distinction in your 
testimony between the national view on the question of whether 
public financing for professional sports stadiums diverts funds 
from infrastructure and the local view. Which is the more 
appropriate view on the question of existence of a diversion 
from meeting critical public infrastructure needs, a national 
or local view? And why?
    Ms. Long. I think that the local perspective is more 
important. First of all, because we are talking about major 
league sports facilities, there is only a relative handful of 
large cities that host these stadiums and arenas, slightly over 
50, whereas at the national level, infrastructure is an issue 
in the over 40,000 jurisdictions in the United States. So the 
local level I think is more important, because if we substitute 
these funds that is where it is happening, so the $1 billion to 
$2 billion a year subdivided by those 50 cities, we are talking 
about, on average, $10 million per facility per city. That is a 
lot of money.
    Mr. Kucinich. Thank you.
    Professor Hale, as you may know, former New York State 
Comptroller Mr. Regan wrote an article where he identified an 
absence of a process based on sound science and analysis to 
compare and prioritize infrastructure needs. He also noted 
there was little public information about inherent choices 
before they are made. What is your explanation, from a process 
perspective, on why the public infrastructure is not adequately 
maintained? And then where should elected officials place the 
desire to build a professional sports stadium in a list of 
infrastructure priorities?
    Mr. Hale. As you read the initial statement at the opening 
of this hearing, you mentioned that there was very little data 
that had been going out. This is part of the rationale. We 
don't have a closed loop system here. Much of the data that is 
being collected is being collected ad hoc. The data that is 
being processed is being processed in multiple different ways. 
One of the issues that brings this all to bear is that the 
stakeholders who should be judging this, basically the 
constituents, are not getting reports on what performance 
should be in most of the infrastructure.
    For example, in Alabama one of the areas that we do have 
reporting is in our freshwater drinking, and in our drinking 
system each year we get a report card basically on the quality 
of water. In that system, the variation of quality is much less 
than in the other infrastructures that we see within our own 
    Mr. Kucinich. Thank you very much.
    I want to go to Mr. Issa right now.
    Mr. Issa. Thank you, Mr. Chairman.
    This panel is even more intriguing than the previous one, 
and I appreciate all of your testimonies.
    Ms. Damiani, you have a wonderful name. You have my 
sympathies, because I have hated the damn Yankees my whole 
live, and as a Clevelander who kicked their ass with a lot less 
money this year, as far as I am concerned the Bronx Bombers can 
just flat go out of business. It won't bother me a bit. And 
Steinbrenner and all his millions can go do something else.
    So, just so we understand, I am on your side on this, and I 
do believe that your complaints, which were also heard in the 
first previous hearing we held, are a classic example of a 
failure of local city government and State government to 
maintain any or all interest groups, particularly when it 
relates to a public park and a redevelopment. It is not unique. 
In California we certainly have had the taking of one group's 
land for the purpose of what a city council or State assembly 
thought was to the benefit of somebody else's. On that you have 
total agreement.
    So I am not going to ask any questions except to say, one, 
I wouldn't buy the Yankees a new stadium; two, that, in fact, 
your point is well taken on the absence of the kind of local 
control that should be in every project.
    Dr. Maguire, I have just a couple of questions for you. I 
am using a little bit of Professor Long's testimony. If I take 
her figures and her figures, there is not a lot of controversy, 
so let's just assume for a moment that 75 cents on every $1 is 
somehow not by the private company--in other words, 
professional sports, the National Baseball League or the NFL or 
whatever--that 25 percent comes from them and the other 75 
percent comes from public contribution, which is then repaid 
all or in part by taxes and fees. Fair assessment that the two 
of you agree on that as good a figure as any?
    Mr. Maguire. Sure.
    Mr. Issa. OK. And we will assume for a moment we are going 
to take the 1993 to 2005 and call it $18 billion. You two can 
kind of agree on that, because I think it is important. If it 
is $18 billion, 33 percent Federal bracket, we are talking $6 
billion in Federal subsidy over that period of time. Right?
    Mr. Maguire. Sure.
    Mr. Issa. OK. The $6 billion, when we play with $2.5 
trillion a year here, I do have to ask are we talking about a 
relatively small amount of money in the sense that it is a few 
hundred million per year of Federal taxes lost, if I did my 
math right: $6 billion over 12 years is $500 million a year of 
lost Federal revenue. Am I doing my math right?
    Mr. Maguire. I assume you are, yes.
    Mr. Issa. OK. Now, if we look at Federal revenues on a 
global basis, because I think in the earlier panel there was a 
good faith statement that I think is to be considered as a 
fact, and that is that if you move these things all around from 
city to city, at the end of the day you have the same amount of 
teams and they are in some city, and I think that is something 
we can all agree on. This is a very bipartisan subcommittee, so 
we look for what we can agree on as much as we can. We all kind 
of agree on that, that whatever the benefit is to the Federal 
Government for its $500 million a year, it is roughly the same 
no matter what city it is in, with the possible exception of 
New York, but we are not going to go there.
    If that is the case, what would it take for $18 billion to 
get $500 million of benefit to the Federal Government per year 
if a city instead just didn't have those hotel taxes that 
typically pay for stadiums? What would be the benefit of that 
slightly lower tax and not having the stadium to the city? 
Because, if I understand it correctly, since it is paid for by 
taxes almost always that are levied commensurate in some way 
with the activity--and in San Diego we did it with hotel taxes, 
hotel and drink taxes and so on--those taxes would either not 
have been levied or, if they were levied, they still would have 
been reasonably justifiable only to promote that same 
activity--in other words, clean up the downtown area, dig out 
some public other amusement park.
    Realistically, can either one of you--and Dr. Maguire 
first, but, Professor, you, too--can you put a dollar figure on 
what not having this $1.5 billion a year spread over the whole 
country, this $500 million spread over the whole country if we 
just didn't tax that? The Federal Government wouldn't get the 
benefit because it just wouldn't have been taxed. What would we 
really get for it if we just didn't spend the money on it and 
closed down every team for a moment and just don't have them? 
How would you say that impact is to the $500 million to the 
Federal Government per year?
    Mr. Maguire. Well, I have been instructed not to testify 
beyond what was in the written testimony and what I spoke about 
today, but I will kind of divert things a bit.
    Mr. Issa. Be brave. Be bold.
    Mr. Maguire. Be brave and bold. It is about the stadiums, 
and it brings back something that happened in a hearing a 
couple of months ago, what Dennis Zimmerman said, that the 
number of professional sports teams is restricted, and so one 
could say on the demand side a lot of cities want a team but 
they can't get them. Some might even say there should be 
several more teams in New York. If you had a more free market 
for sports teams, you would have a lot more teams out there 
without the ability to blackmail cities into paying more than 
what they should have for the team.
    So if you start with the assumption that there is a 
perfectly competitive market for sports teams, then I think you 
have started on the wrong path. You have to assume that there 
is some sort of monopoly restriction on the number of teams 
that are out there. And then from there you have to wonder what 
role has the Federal Government played in that somewhat 
dysfunctional market.
    I think I should stop there and defer.
    Mr. Issa. I think that is great. I apologize, I have been 
running over to Judiciary all day. We have and we continue to 
review the question of antitrust and whether or not, 
particularly as to limitation of number of teams, whether that 
is something that we should take out of the antitrust exemption 
that, in fact, allows for a single entity to restrict the 
number on a national basis.
    I will give Professor Long the final word, but I was only 
trying to get the ability to say, look, $500 million to the 
Federal Government in abatement--because that is the only cost, 
because the rest of it are taxes that wouldn't have occurred 
normally because you are not going to normally tax the hotel if 
they don't feel that they are getting back a benefit in 
revenues greater. How big an offset is it? I think we have been 
talking in big terms here, but when you break them down it is 
actually a relatively small amount into a $2.5 trillion a year 
Federal Government.
    Ms. Long. If I understand your question correctly--and I am 
not sure that I do--the $10 million on average that a city and 
a county government are spending subsidizing a sports facility, 
how might that $10 million be better used? Is that your 
question? Is it the notion of opportunity cost?
    Mr. Issa. Yes. It is strictly a matter of if you didn't tax 
because it didn't happen, then those two-thirds of the revenues 
would disappear because the revenues are generally commensurate 
with the new construction, so the only difference is the $500 
million a year of Federal taxes. The question is: how big an 
impact would that have to those of us in Washington, because 
our jurisdiction on this committee is somewhat limited to 
whether or not that is a fair assessment to give the tax 
treatment. We have to wrap up. I apologize.
    Ms. Long. This is actually an interesting question and an 
interesting point. It brings up the point of Denver, where 
there was a specific increase in the sales tax in the five-
county area that was dedicated to repayment of the debt 
issuance for the two facilities in that case. They expected the 
bonds to have a duration of 30 years, but, in fact, the bonds 
were retired after 6 years because the sales tax revenue had 
created so much additional revenue more than they had 
    Then I believe they did rescind the tax increase, so that 
is an example of a good outcome where the tax is directly and 
100 percent tied to the nature of the cost.
    I am not convinced that in every case there is a complete 
and perfect nexus to the cost, and I think that is where the 
issue lies. Hotel taxes are not paid exclusively by people who 
come to town to view a sports game. In fact, in many case the 
hospitality industry dislikes additional taxes on tourism 
revenues because it has an impact on their other visitors. So I 
think it is a more nuanced issue.
    Mr. Issa. Thank you. And thank you for the second hearing, 
Mr. Chairman.
    Mr. Kucinich. I want to thank the gentleman.
    In order to keep the time evened out here, I am going to 
ask my 5 minutes and then we are going to be done, if that 
meets with your approval.
    Mr. Issa. That is fine.
    Mr. Kucinich. Ms. Damiani, you have testified and 
previously written about a process by which the Yankees got a 
new publicly financed stadium. What is the experience which you 
have documented about how the Yankees got public money for the 
new stadium? What does it say, if anything, about the process, 
    Ms. Damiani. I wish I could say there was a real process. 
They needed to go through our city's land use procedure, which 
on paper looks somewhat extensive. There needs to be community 
hearings. The Bronx Borough president needs to be involved and 
the entire City Council has to approve the project. The local 
community board voted overwhelmingly against the project, and 
afterwards the borough president removed every single one of 
the members that voted against it.
    The entire city council minus the representative that is 
right around Yankee Stadium voted for the project under the 
guise that there is this community benefits--I am saying 
agreement, but please note that is really not what it was. That 
is a lingo that has been picked up. Unfortunately, it doesn't 
seem to be clear in the Bronx what it is.
    So they were saying that the reason why many of these 
officials were voting for it and approving of this process was 
because there were going to be guaranteed benefits on the other 
    Mr. Kucinich. Let me ask you this question. You said that 
the former commissioner of the Office of Labor Relations and 
Deputy Mayor for Economic Development ended up as an official 
of the Yankees?
    Ms. Damiani. Yes. Yes, sir. Randy Levine is----
    Mr. Kucinich. Was there any evidence that he was involved 
in any of the decisionmaking with respect to the use of land 
that then became a benefit to the Yankees?
    Ms. Damiani. There were some agreements that were approved 
at the very end of the Rudy Guiliani administration. Randy 
Levine wasn't there at that exact moment, but suffice to say 
the experience that he picked up on the taxpayer tab I am sure 
has greatly benefited the Yankees' bottom line.
    Mr. Kucinich. The Yankees are benefiting greatly by the 
public financing of the new stadium and parking garage. Have 
they been careful with the public money they have used?
    Ms. Damiani. The public money?
    Mr. Kucinich. You know, it is undisputed that the Yankees 
are benefiting greatly----
    Ms. Damiani. Yes.
    Mr. Kucinich [continuing]. By the public financing of the 
new stadium and the parking garage. Have they been at least 
careful with the public money they have used?
    Ms. Damiani. I am not quite----
    Mr. Kucinich. They have a public benefit, I mean, how 
    Ms. Damiani. I am going to say no. There hasn't been a 
clear definition as to how the local residents are going to be 
getting jobs from this. There have been many conversations 
about it, but as far as people----
    Mr. Kucinich. What about the planning money?
    Ms. Damiani. Rudy Guiliani allowed the Yankees to deduct $5 
million a year for 5 years to plan the new stadium, and Mayor 
Bloomberg actually extended that for another 5 years. Those 
planning expenses seem to have done two things: hired former 
public officials and experts to make sure that they could get 
the land use and the subsidies. So in a sense New York City 
taxpayers are allowing themselves to sort of be taken advantage 
of because the Yankees used that money to then benefit the 
expediting of the process.
    Most recently, we finally got documents from 2006 that the 
Yankees gave to the city--now, we are not quite sure whether 
they have actually officially deducted them or not, but the 
receipts were nothing related to planning costs. There were 
deductions for crystal baseballs and salmon dinners on post-
season nights and lots of tee-shirts and jerseys and the like. 
So I just want to reinforce that the local issue that, 
Congressman, you brought up is very important, and it is 
greatly lacking in New York.
    Mr. Kucinich. Final question, Dr. Maguire. As a Ph.D. 
economist who wrote his dissertation on the economics of 
professional sports stadiums, does it make sense for public 
officials to spend taxpayer funds on professional sports 
stadiums? And do stadiums deliver jobs and revenues as their 
proponents claim?
    Mr. Maguire. I will agree with all the economists that have 
appeared before you in the past, not found any tangible 
benefit, just a shifting of jobs and economic activity, not a 
new or net gain.
    Mr. Kucinich. Thank you very much, Dr. Maguire.
    I want to thank Mr. Issa for his participation in this 
hearing. It has been an excellent discussion.
    I am Dennis Kucinich, chairman of the Domestic Policy 
Subcommittee of the Oversight and Government Reform Committee. 
This has been a hearing on Professional Sports Stadiums: Do 
they Divert Public Funds from Critical Public Infrastructure. I 
want to thank all of the witnesses who are here today and thank 
all of those who have been in attendance and who are watching 
the proceedings, and the staff of both the majority and 
minority for their assistance in preparing for this hearing.
    This committee stands adjourned.
    [Whereupon, at 5:25 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Diane E. Watson follows:]